State Child Health; Implementing Regulations for the State Children's Health Insurance Program

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 431, 433, 435, 436, and 457

[HCFA-2006-F]

RIN 0938-AI28

State Child Health; Implementing Regulations for the State Children's Health Insurance Program

AGENCY:

Health Care Financing Administration (HCFA) , HHS.

ACTION:

Final rule.

SUMMARY:

Section 4901 of the Balanced Budget Act of 1997 (BBA) amended the Social Security Act (the Act) by adding a new title XXI, the State Children's Health Insurance Program (SCHIP) . Title XXI provides funds to States to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children in an effective and efficient manner. To be eligible for funds under this program, States must submit a State plan, which must be approved by the Secretary.

This final rule implements provisions related to SCHIP including State plan requirements and plan administration, coverage and benefits, eligibility and enrollment, enrollee financial responsibility, strategic planning, substitution of coverage, program integrity, certain allowable waivers, and applicant and enrollee protections. This final rule also implements the provisions of sections 4911 and 4912 of the BBA, which amended title XIX of the Act to expand State options for coverage of children under the Medicaid program. In addition, this final rule makes technical corrections to subparts B, and F of part 457.

DATES:

This final rule is effective April 11, 2001.

Compliance dates:

To the extent contract changes are necessary, however, States will not be found out of compliance until the next contract cycle. By contract cycle, we mean the earlier of the date of the original period of the existing contract, or the date of any modification or extension of the contract (whether or not contemplated within the scope of the contract) .

FOR FURTHER INFORMATION CONTACT:

Regina Fletcher for general information, (410) 786-3293; Diona Kristian for subpart A, State plan, (410) 786-3283; Judy Rhoades for subpart C, Eligibility, (410) 786-4462; Regina Fletcher for subpart D, Benefits, (410) 786-5916; Nancy Fasciano for subpart E, Cost sharing, (410) 786-4578; Kathleen Farrell for subpart G, Strategic planning, (410) 786-1236; Terese Klitenic for subpart H, Substitution of coverage, (410) 786-5942; Maurice Gagnon for subpart I, Program integrity (410) 786-60619; Cindy Shirk for subpart J, Allowable waivers, (410) 786-1304; Christina Moylan for subpart K, Applicant and enrollee protections (410) 786-6102; Judy Rhoades for Expanded coverage of children under Medicaid and Medicaid coordination, (410) 786-4462; Christine Hinds for Medicaid disproportionate share hospital expenditures, (410) 786-4578; and Joan Mahanes for the Vaccines for Children program, (410) 786-4583.

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I. Background

Section 490l of the BBA, Public Law 105-33, as amended by Public Law 105-100, added title XXI to the Act. Title XXI authorizes the SCHIP program to assist State efforts to initiate and expand the provision of child health assistance to uninsured, low-income children. Under title XXI, States may provide child health assistance primarily for obtaining health benefits coverage through (1) a separate child health program that meets the requirements specified under section 2103 of the Act; (2) expanding eligibility for benefits under the State's Medicaid plan under title XIX of the Act; or (3) a combination of the two approaches. To be eligible for funds under this program, States must submit a State child health plan (State plan), which must be approved by the Secretary.

The State Children's Health Insurance Program is jointly financed by the Federal and State governments and is administered by the States. Within broad Federal guidelines, each State determines the design of its program, eligibility groups, benefit packages, payment levels for coverage, and administrative and operating procedures. SCHIP provides a capped amount of funds to States on a matching basis for Federal fiscal years (FY) 1998 through 2007. At the Federal level, SCHIP is administered by the Department of Health and Human Services, through the Center for Medicaid and State Operations (CMSO) of the Health Care Financing Administration (HCFA). Federal payments under title XXI to States are based on State expenditures under approved plans effective on or after October 1, 1997.

This final rule implements the following sections of title XXI of the Act:

• Section 2101 of the Act, which sets forth the purpose of title XXI, the requirements of a State plan, State entitlement to title XXI funds, and the effective date of the program.

• Section 2102 of the Act, which sets forth the general contents of a State plan, including eligibility standards and methodologies, coordination, and outreach.

• Section 2103 of the Act, which contains coverage requirements for children's health insurance.

• The following parts of section 2105 of the Act: 2105(c)(2)(B), which relates to cost-effective community based health delivery systems; 2105(c)(3), which relates to waivers for purchase of family coverage; 2105(c)(5), which relates to offsets for cost-sharing receipts, and 2105(c)(7) which relates to limitations on payment for abortion.

• Section 2106 of the Act, which describes the process for submission and approval of State child health plans and plan amendments.

• Section 2107 of the Act, which sets forth requirements relating to strategic objectives, performance goals and program administration.

• Section 2108 of the Act, which requires States to submit annual reports and evaluations of the effectiveness of the State's title XXI plan.

• Section 2109 of the Act, which sets forth the relation of title XXI to other laws.

• Section 2110 of the Act, which sets forth title XXI definitions.

This final rule also implements the provisions of sections 4911 and 4912 of the BBA, that amended title XIX of the Act to provide expanded coverage to children under the Medicaid program. Specifically, section 4911 of the BBA set forth provisions for use of State child health assistance funds for enhanced Medicaid match for expanded eligibility under Medicaid to provide medical assistance to optional targeted low-income children. Section 4912 of the BBA added a new section 1920A to the Act creating a new option to provide presumptive eligibility for children. Both title XXI and title XIX statutory provisions are discussed in detail in section II. of this preamble.

This final rule also implements section 704 of the Balanced Budget Refinement Act of 1999 (BBRA, Public Law 106-113), enacted on November 29, 1999, which requires the Secretary to refer to the title XXI program as the “State Children's Health Insurance Program” or “SCHIP” in any publication or other official communication.

We note that on May 24, 2000, HCFA published in the

Federal Register

a final rule (HCFA 2114-F) concerning financial program allotments and payments to States under SCHIP at (65 FR 33616). In that rule, we implemented section 2104 and portions of section 2105 of the Act, which relate to allotments and payments to States under title XXI. For a detailed discussion of title XXI and related title XIX financial provisions, including the allotment process, the payment process, financial reporting requirements and the grant award process, refer to the May 24, 2000 final rule (65 FR 33616). Please note that, to eliminate duplication and provide clarity, this final rule also amends selected sections of the financial rule within Subpart B.

II. Provisions of the Proposed Rule and Discussion of Public Comments

A. Overview

1. Summary of Proposed Provisions and Significant Revisions in This Final Rule.

On November 8, 1999, we published a proposed rule that set forth the programmatic provisions of the State Children's Health Insurance Program (64 FR 60882). The provisions of the proposed regulation were largely based on previously released guidance, and therefore represented policies that had been in operation for some time. In the proposed rule, we identified a number of areas in which we elaborated on previous guidance or proposed new policies.

We received 109 timely comments on the proposed rule. Interested parties that commented included States, advocacy organizations, individuals, and provider organizations. The comments received varied widely and were often very detailed. We received a significant number of comments on the following areas: State plan issues, such as when an amendment to an existing plan is needed; information that should be provided or made available to potential applicants, applicants and enrollees; the exemption to cost sharing for American Indian/Alaska Native children; eligibility and “screen and enroll” requirements; Medicaid coordination issues; eligibility simplification options such as presumptive eligibility; the definition of a targeted low-income child; substitution of private coverage; data collection on race, ethnicity, gender and primary language; grievance and appeal procedures and other enrollee protections; and premium assistance for employer-sponsored coverage.

All public comments have been summarized and are discussed in detail in section II below. A brief summary of key issues discussed in the proposed rule as well as significant revisions made in this final rule follows:

• Subpart A—State Plan Requirements

The proposed regulation included several conditions under which States must submit amendments to approved SCHIP plans. For example, we proposed that a State must submit a plan amendment when the funding source of the State share changes, prior to such change taking effect. In addition, we proposed that amendments to impose cost sharing on beneficiaries, increase existing cost-sharing charges, or increase the cumulative cost-sharing maximum considered the same as amendments proposing a restriction in benefits. We noted that States would be required to follow rules regarding prior public notice and retroactive effective dates for these amendments.

The final regulation clarifies several issues surrounding the circumstances under which amendments must be submitted. It lists more clearly the program changes that must be included in the State plan by submitting an amendment. In addition, the final rule modifies the budget requirements to require a 1-year projected budget for those amendments that have a significant budgetary impact. Budgets are no longer required with every State plan amendment; however States must submit a 3-year projected budget with its annual report (discussed in subpart G). Finally, States must submit an amendment before making changes in the source of the non-Federal share of funding.

We have provided additional clarification with regard to the requirements for coordination between SCHIP and Medicaid, as well as coordination with other public programs. We have modified the regulation text to further emphasize the need for coordination with other public programs after screening for Medicaid eligibility during the SCHIP application process, as well as assisting in enrollment in SCHIP of children determined ineligible for Medicaid.

The section laying out provisions for enrollment assistance and information requirements has been modified to include the provision of linguistically appropriate materials to families of potential applicants, applicants and enrollees in SCHIP to assist them in making informed health care decisions about their health plans, professionals and facilities. We have also clarified that, in addition to information about the types of benefits and participating providers. In addition, States must inform applicants and enrollees about their rights and responsibilities regarding procedures for review of adverse decisions regarding eligibility or health services decisions and the circumstances under which they may be subject to enrollment caps and waiting lists.

• Subpart C—Eligibility, Screening, Applications and Enrollment

The proposed rule outlined provisions for eligibility and enrollment for separate child health programs and implementation of the “screen and enroll” requirement. It also included the title XXI restrictions on the participation of children of public agency employees who are eligible to participate in a State health benefits plan, children who are residing in institutions for mental disease (IMDs), and children who are inmates of public institutions.

The final rule further elaborates on issues surrounding eligibility, enrollment and ensuring that children eligible for Medicaid benefits are enrolled in Medicaid. We have modified the definition of “targeted low-income child” to parallel a modification to the definition of “optional targeted low-

income child” under the Medicaid regulations. This modification effectively excludes from title XXI “maintenance of effort” provisions certain section 1115 demonstrations that were in place on March 31, 1997, but that were so limited in scope that we do not consider them to be equivalent to Medicaid.

We clarified the standards for eligibility for separate child health programs, including: (1) Clearly permitting self-declaration of citizenship; (2) prohibiting durational residency requirements; (3) prohibiting lifetime caps or other time limits on eligibility; (4) permitting 12 months of continuous eligibility; and (5) permitting enrollment caps and waiting lists when approved as part of the State plan. In addition, we have specifically required States to implement standards for conducting eligibility determinations and a process that does not exceed 45 days (excluding days during which the application has been suspended).

The rule provides further clarification of the issues surrounding children of public employees, children in IMDs and children who are inmates of public institutions. For example, we clarified that the children of public employees are eligible only if the employer contribution under a State health benefits plan is no more than a nominal contribution of $10 per family, per month. We also modified the definition of “State health benefits plan” to exclude separately run county, city, or other public agency plans that receive no State contribution toward the cost of coverage and in which no State employees participate.

The final rule also further clarifies the requirements for treatment of children found to be potentially eligible for Medicaid after applying for coverage under a separate child health program. In order to ensure the effectiveness of the screening mechanisms, States are required to establish a system for monitoring the screen and enroll process. Finally, the rule lays out procedures for States that opt to provide presumptive eligibility for the separate child health program while the application and eligibility determination process is underway.

• Subpart D—Coverage and Benefits

The proposed rule provided for some flexibility for States in keeping the SCHIP benefit package current. A State using the benchmark benefit package option is not required to submit an amendment each time the benchmark package changes, as long as it continues to offer the same benefits covered under the approved State plan. However, States must submit an amendment to their State plan any time the benefits offered to enrollees change. If the change in benefits is intended to conform the separate State benefit package to the benchmark coverage, then the benefit package remains benchmark coverage. But if the change in benefits causes the State-offered benefits to differ from the benchmark coverage, then the benefits must be reclassified as benchmark equivalent or one of the other benefit package options.

The proposed rule included the requirement that States use the “prudent layperson standard” in defining coverage for emergency services under SCHIP. The proposed rule also required use of the American Committee on Immunization Practices (ACIP) schedule for age-appropriate immunizations.

The final rule retains all of the same provisions as included in the proposed rule. In addition, for purposes of clarity, we have moved a provision formerly found in Subpart G, Strategic Planning, Reporting, and Evaluation into this Subpart. The provision, entitled “State assurance of access to care and procedures to assure quality and appropriateness of care” includes the requirements for assuring access to covered services, including emergency services, well-baby, well-child and well-adolescent care, and age appropriate immunizations. This provision also requires States to assure appropriate and timely procedures to monitor and treat enrollees with chronic, complex, or serious medical conditions, including access to an adequate number of visits to specialists experienced in treating the specific medical condition. Finally, this provision requires States to assure decisions related to the provision of health services are completed within 14 days of the request for the service, in accordance with the medical needs of the child.

• Subpart E—Enrollee Financial Responsibilities

Title XXI permits States to impose cost sharing on enrollees in separate child health programs, but places a 5 percent cap on the amount of cost-sharing expenditures for families with incomes greater than 150 percent of the Federal Poverty Level (FPL). In an attempt to preserve State flexibility, we proposed to give States the option to use either gross or net family income when calculating this cost-sharing cap for families. In addition, we proposed to place a limit of 2.5 percent on cost sharing for families with incomes at or below 150 percent of the FPL, in order to ensure that those families with lower incomes will not be required to spend the same percentage of their income on cost sharing as those with higher incomes. Many commenters supported the need for this distinction, given the more limited amount of disposable income in such families. Under the proposed rule, States also had the option to apply medical costs for non-covered or non-eligible family members toward the cumulative maximum cap.

We proposed that States must have a process in place that will protect enrollees by ensuring an opportunity to pay past due cost-sharing amount before they can be disenrolled from the program for failure to pay cost sharing. We suggested that States should look for a pattern of nonpayment, and provide clear notice and opportunities for late payment before taking action to disenroll.

Finally, title XXI includes provisions to ensure enrollment and access to health care services for American Indian and Alaska Native (AI/AN) children. The proposed regulation incorporated our interpretation that in light of the unique Federal relationship with tribal governments, cost-sharing requirements for individuals who are members of a Federally recognized tribe are not consistent with this statutory requirement.

The final rule clarifies that States must provide to the family of each individual SCHIP enrollee, the cumulative cost-sharing maximum amount for that year. In addition, this subpart confirms that the State plan must clearly describe a State's cost-sharing policy in terms of which children will be subject to cost sharing, the consequences for enrollees who do not pay a charge, and the disenrollment protections provided to enrollees in the event that they do not pay the cost sharing. States must also describe the methodology to ensure that families do not exceed the cumulative cost-sharing maximum and assure that families will not be held liable for cost-sharing amounts, beyond the copayment amounts in the State plan, for emergency services provided outside of an enrollee's managed care network.

The final rule confirms the protections included in the proposed rule related to AI/AN children and clarifies that States may use self-declaration of tribal membership for identifying AI/AN children in order to facilitate implementation of the cost-sharing exemption.

The final rule continues to require that States may not impose more than one type of cost sharing on a service; and that States may only impose one copayment based on the total cost of

services furnished during one office visit.

Finally, States must provide enrollees with an opportunity to show that their family income has declined before being disenrolled for failure to pay cost sharing, because the child may have become eligible for a category with lower or no cost sharing if family income has declined. States must also provide enrollees with an opportunity for an impartial review to address disenrollment from the program for this reason (see discussion of new Subpart K, Applicant and Enrollee Protections).

• Subpart G—Strategic Planning, Reporting and Evaluation

The proposed regulation included provisions intended to ensure compliance with the statute and the elements of the State's approved title XXI plan. This subpart included the essential elements of strategic objectives and performance measures to assist the States and the Federal government in assessing the effectiveness of the SCHIP program in increasing the number of children with health insurance, and an assessment of the quality of and access to needed health care services.

The proposed rule also outlined the quarterly statistical reporting requirements and the required elements of States annual reports and the March 31, 2000 SCHIP evaluation.

The final rule confirms these requirements and further describes data elements to be reported by the States, including data on gender, race, ethnicity, and primary language. The gender, race and ethnicity data will be required in the State's quarterly statistical enrollment reports; and the annual reports will include a description of data regarding the primary language of SCHIP enrollees. In addition, the annual reports will include an updated budget for a 3-year period, including any changes in the source of the non-Federal share of State plan expenditures. The annual reports must also include description of the State's current income eligibility standards and methodologies.

Finally, the final rule notes the Secretary's intention to develop, with input from States, academic and intergovernmental organizations, a core set of national performance goals and measures. When developed, States will also be required to report on these measures in their annual reports.

• Subpart H—Substitution of Coverage

The proposed rule set forth requirements for ensuring that States have in place mechanisms aimed at preventing substitution of public coverage for private group coverage. With respect to coverage provided directly through SCHIP, the preamble included a description of HCFA's three-tiered policy to apply increased scrutiny to States' substitution prevention strategies at higher incomes. For coverage provided through premium assistance for employers' group health plans, the proposed rule set forth specific requirements for a six-month period of uninsurance and a minimum 60 percent employer premium contribution.

Due to a general lack of evidence of the existence of substitution below 200 percent of the FPL and the significant number of comments received on this subpart, we have revised the final rule to clarify our policy related to substitution. The preamble to the final rule clarifies that for coverage provided other than through premium assistance programs, we will no longer require a substitution prevention strategy for families with incomes below 250 percent of the FPL. Instead, States will be required to monitor the occurrence of substitution below 200 percent of the FPL. Between 200 and 250 percent of the FPL, we will work with States to develop procedures, in addition to monitoring, to prevent substitution that would be implemented in the event that an unacceptable level of substitution is identified. Above 250 percent of the FPL, States must have a substitution prevention mechanism in place, however we encourage States to use other strategies than waiting periods.

For States wishing to utilize premium assistance programs, we have revised the final rule to provide additional flexibility. While we have retained the 6-month waiting period without group health plan coverage, States have flexibility to include a number of exceptions for circumstances such as involuntary loss of coverage, economic hardship, and change to employment that does not offer dependent coverage. We have also removed the requirement for States to demonstrate an employer contribution of at least 60 percent when providing coverage through premium assistance programs. Rather, we have clarified that States must demonstrate cost-effectiveness of their proposals by identifying a minimum contribution level and providing supporting data to show that the level is representative of the employer-sponsored insurance market in their State.

Finally, the final rule provides that the Secretary has discretion to reduce or waive the minimum period without private group health plan coverage.

• Subpart I—Program Integrity

The provisions in this subpart are intended to preserve program integrity in the State Children's Health Insurance Program. We proposed that States must have fraud and abuse protections in place, but provided flexibility to States in developing program integrity protections for separate child health programs. States with separate child health programs may utilize systems already existing for Medicaid, but are not required to do so. In addition, we proposed that States have additional flexibility in setting procurement standards more broadly than are available under Medicaid. We proposed that States may choose to base payment rates on public and/or private rates for comparable services for comparable populations, and where appropriate, establish higher rates in order to ensure sufficient provider participation and access.

Finally, the proposed regulation included various enrollee protections consistent with the President's directive regarding the

Consumer Bill of Rights and Responsibilities,

including provisions regarding grievances and privacy protections. In response to public comment about the need for consistency of provisions throughout the final rule, we have moved the overview of the enrollee protections to the preamble of this final rule, but have removed it from the final regulation text, as it repeated the protections included throughout the proposed rule. The discussion of enrollee protections is now found in subpart K—Applicant and Enrollee Protections.

The final rule confirms the significance of maintaining program integrity in SCHIP and clarifies issues related to the certification of data that determines payment and the development of actuarially sound payment rates. It notes that States should base payment rates on public and/or private rates for comparable services for comparable populations, consistent with the principles of actuarial soundness. We have also moved the subsection formerly entitled, “Grievances and appeals” to the new Subpart K, where these requirements are retained and elaborated upon.

Finally, the rule confirms the importance of maintaining the integrity of professional advice to enrollees by requiring compliance with the provisions of the final Medicare+Choice rule that prohibit interference with health care professionals' advice to enrollees; require that professionals provide information about treatment options in an appropriate manner; limits

physician incentive plans; and provides requirements related to information disclosure related to physician incentive plans.

• Subpart J—Waivers

The proposed rule noted the requirements for obtaining a waiver to provide coverage through a community-based delivery system and discussed the circumstances under which a State may obtain a waiver in order to provide title XXI coverage to entire families. We proposed that in order to qualify for a family coverage waiver, the State must meet several requirements, including a requirement that the proposal be cost-effective.

In the final rule, we have clarified that the provisions of this subpart apply to separate child health programs. The provisions apply to Medicaid expansions only in cases where the State files claims for administrative costs under title XXI and seeks a waiver of limitations on such claims for coverage under a community-based health delivery system. We have clarified that HCFA will review requests for waivers under this subpart using the same time frames (the 90-day review clock) as those used for the review of State plan amendments under SCHIP. In addition, in response to comments received on this subpart, we have extended the approval period for the waivers to provide coverage through a community based delivery system from two years to three years in an attempt to better align with the period of availability for SCHIP allotments.

With regard to the family coverage waiver, the final rule clarifies that when applying the cost-effectiveness test, States must assess cost-effectiveness in its initial request for a waiver, and then annually. States may do the assessment either on a case-by-case basis or in the aggregate.

• Subpart K—Applicant and Enrollee Protections

The proposed rule emphasized the importance of enrollee protections by including many of the elements of the Consumer Bill of Rights and Responsibilities throughout the rule. In addition, an overview of these protections was presented in Subpart I—Program Integrity and Beneficiary Protections. We received several comments on our decision to implement the CBRR through this regulation. While we have retained the protections included in the proposed rule in the appropriate location as related to the issue, we have attempted to clarify the required protections by creating a new subpart dedicated to privacy and a process for review of certain eligibility and health services matters, Subpart K—Applicant and Enrollee Protections.

We have included more specific requirements than those that were included in Subpart I of the proposed rule and will require the State plan to include a description of the State's process for review and resolution of eligibility and enrollment matters such as denial or failure to make a timely determination of eligibility, and suspension or termination of enrollment, including disenrollment for failure to pay cost sharing. States must also provide enrollees with an opportunity for external review of health services matters, such as delay, denial, reduction, suspension or termination of health services, in whole or in part; and the failure to approve, furnish, or provide payment for health services in a timely manner. Exceptions to these requirements can be made in the event that the sole basis for such a decision is a change in the State plan or a change in Federal or State law that affects all or a group of applicants or enrollees without regard to their individual circumstances.

The final rule lays out requirements for the core elements of review of eligibility or health services matters, and requires that the reviews be impartial, conducted by a person or entity that has not been directly involved or responsible for the matter under review. The rule also establishes a 90-day time frame within which external reviews (or a combination of an internal and an external review) must be completed. States should take into consideration the medical needs of the patient when conducting the reviews and provide expedited time frames if an enrollee's physician determines that a longer time frame could seriously jeopardize the enrollees life, health or ability to attain or regain maximum function. If the enrollee has access to both internal and external review, each level of expedited review may take no more than 72 hours.

The final rule requires States to provide continuation of enrollment pending the completion of review of a suspension or termination of enrollment, including disenrollment for failure to pay cost sharing. States must also provide enrollees with timely written notice of any determinations subject to review including the reasons for the determination, an explanation of applicable rights to review, the time frames for review, and circumstances under which enrollment may continue pending a review.

Finally, the rule provides an exception for States that operate premium assistance programs under SCHIP. If the State utilizes a premium assistance program that does not meet the requirements for review under this Subpart, the State must give applicants and enrollees the option to enroll in the non-premium assistance program in the State. States must provide this option at initial enrollment and at each renewal of eligibility.

• Expanded Coverage of Children under Medicaid and Medicaid Coordination.

In this section we set forth our changes to the Medicaid regulations that allow for expanded coverage of children under title XIX. Although these regulations are related to title XXI and SCHIP, they are changes to the Medicaid program and all existing Medicaid regulations also apply. We set forth requirements related to presumptive eligibility for children, the enhanced FMAP (Federal medical assistance percentage) rate for children, and the new group of optional targeted low-income children established by the statute. The presumptive eligibility provisions have been clarified in this final rule to lay out specific notification requirements and establish procedures for making presumptive eligibility determinations and expands the definition of “qualified entity” in accordance with the Benefits Improvement and Protection Act of 2000 (BIPA). Finally, the rule establishes consistent coordination requirements between Medicaid and SCHIP.

2. General Comments

In this section, we have summarized and responded to general public comments on the SCHIP programmatic regulation. These comments relate to the program or the proposed rule as a whole and not to any particular provision of the proposed rule. All other public comments are addressed below in the context of the relevant subpart.

Comment:

We received a great number of comments discussing the issue of providing SCHIP coverage through premium assistance programs. Many commenters noted the difficulty that States would have in requiring employer plans to meet the proposed requirements. Many commenters argued that the proposed rule imposed too many requirements on SCHIP coverage obtained through employer-sponsored insurance and that the proposed provisions would stifle State innovation in utilizing such insurance.

Response:

At the time of publication of the proposed rule, the experience with premium assistance programs in SCHIP had been limited to only a few States. Therefore, the proposed

regulation did not include a great deal of specificity regarding the regulation's applicability to premium assistance models. We have attempted to provide States with flexibility, while ensuring that States meet their statutory obligation to all SCHIP enrollees regardless of the insurance product being provided. Further, it would not be consistent with the SCHIP statute to exempt certain enrollees from the protections established by law, simply because of the delivery model. However, we also recognize the value and the increased potential for reaching children associated with interaction with the employer-based insurance market. Thus, while we will ensure compliance with the protections set forth in this final rule, we look forward to working closely with States to help in the development and approval of proposals that utilize premium assistance programs. As noted in the overview section, we have provided some additional flexibility in subpart H, Substitution, with respect to premium assistance programs that we hope will facilitate increased use of premium assistance programs in SCHIP. We have also provided some flexibility with regard to certain enrollee protections in subpart K.

Comment:

One commenter noted that there is an inequity in funding that disadvantages States that expanded eligibility prior to March 31, 1997. Another commenter indicted that it is difficult for States that had expanded Medicaid to high levels prior to March 31, 1997 to access SCHIP funds and suggested that States be allowed to use SCHIP funds to subsidize employer-sponsored insurance.

Response:

We recognize the inequities that have been caused by the “maintenance of effort” provision in the SCHIP statute, which holds States to the current eligibility levels in effect on March 31, 1997, and we applaud States that were progressive in expanding their Medicaid programs through section 1115 demonstrations and through the flexibility provided under section 1902(r)(2) and section 1931 of the statute. However, the maintenance of effort provision in the SCHIP statute was put in place specifically to ensure that States did not roll back the eligibility and benefits standards that were in place prior to the existence of SCHIP, and to encourage further expansion in implementing States' SCHIP programs.

Comment:

Several commenters asserted that the proposed regulations were overly prescriptive, limit State flexibility, and raise program administrative costs. Several commenters specifically complained that the proposed regulations appeared to push States toward Medicaid or Medicaid-like programs. Some commenters asserted that the overall approach directly contradicted Executive Order 13132 on Federalism. Some argued that the regulations should be limited to areas Congress specifically required the Secretary to address in regulations, the administrative review process for State plans, or to clarification of essential terms. While some commenters recognized the need for federal guidance, they supported the inclusion of such guidance in the preamble and other guidance documents rather than in the regulation text.

Response:

In developing the proposed and final regulations, we have taken great care to try to balance the need to ensure that SCHIP will provide the full intended benefits to uninsured, low-income children with the goal of retaining as much State flexibility as possible. HCFA has tried to administer the program and develop policies in a manner that gives States a full opportunity to develop programs that met local needs, whether through a Medicaid expansion or a separate child health program.

To make it possible for States to develop and implement their programs, from the time of enactment of the SCHIP program, HCFA has worked with States to disseminate as much information as possible, as quickly as possible. In the first three months of the program's existence, we released over 100 answers to frequently asked questions and issued several policy guidance letters. We continue to take into consideration the changing needs of States. The programs that States developed vary in scope, delivery system and many other respects. The diversity and innovation that has been displayed is an indication that State flexibility does indeed exist.

In addition, we consulted with State and local officials in the course of the design and review stages of State proposals, and many of the policies found in the proposed and this final rule are a direct result of these discussions and negotiations with the States. To the extent consistent with the objectives of the statute, to obtain substantial health care coverage for uninsured low-income children in an effective and efficient manner, we have endeavored to preserve State options in implementing their programs.

We developed these final regulations with the goal of providing a balanced view of both Medicaid expansions and separate child health programs. We made careful determinations as to whether each subpart should be applicable to separate child health programs

and

Medicaid expansions, or only to separate programs. In doing this, we have attempted to maximize flexibility and avoid the need for duplication of effort, while at the same time recognizing the basic differences between the two approaches.

We believe our considerations, and the consultative process we followed during the State plan review process, fully comported with the requirements of Executive Order 13132, and the final regulations contain the framework necessary for States to achieve the statutory requirements and objectives set forth by Congress.

Comment:

Several commenters were concerned that the proposed regulations would narrow available State options, with particular mention of barriers to private sector models, and impose additional burdensome requirements on States. Some commenters were concerned that the proposed regulations would require administrative costs that would be a difficult financial burden for a small separate child health program.

Response:

We recognize the commenters' concern and have tried to keep potential administrative burden in mind in developing these regulations. Some administrative investment, however, is necessary to ensure proper delivery of health care coverage to uninsured low-income children, and to provide enrollees with protections to ensure that such coverage is furnished in an effective and efficient manner that is coordinated with other sources of health benefits coverage for children.

3. Table of Contents for Part 457

We set forth the new provisions for the State Children's Health Insurance Program in regulations at 42 CFR part 457, subchapter D. We note that the following table of contents is for all of part 457 and lists some subparts which have been reserved for provisions set forth in the May 24, 2000 final financial regulation (65 FR 33616).

Subchapter D—State Children's Health Insurance Program (SCHIP)

PART 457—ALLOTMENTS AND GRANTS TO STATES

Subpart A—Introduction; State Plans for Child Health Insurance Programs and Outreach Strategies

Sec.

457.1

Program description.

457.2

Basis and scope of subchapter D.

457.10

Definitions and use of terms.

457.30

Basis, scope, and applicability of subpart A.

457.40

State program administration.

457.50

State plan.

457.60

Amendments.

457.65

Effective date and duration of State plans and plan amendments.

457.70

Program options.

457.80

Current State child health insurance coverage and coordination.

457.90

Outreach.

457.110

Enrollment assistance and information requirements.

457.120

Public involvement in program development.

457.125

Provision of child health assistance to American Indian and Alaska Native children

457.130

Civil rights assurance.

457.135

Assurance of compliance with other provisions.

457.140

Budget.

457.150

HCFA review of State plan material.

457.160

Notice and timing of HCFA action on State plan material.

457.170

Withdrawal process.

Subpart B—[Reserved]

Subpart C—State Plan Requirements: Eligibility, Screening, Applications, and Enrollment

457.300

Basis, scope, and applicability.

457.301

Definitions and use of terms.

457.305

State plan provisions.

457.310

Targeted low-income child.

457.320

Other eligibility standards.

457.340

Application for and enrollment in a separate child health program.

457.350

Eligibility screening and facilitation of Medicaid enrollment.

457.353

Monitoring and evaluation of the screening process.

457.355

Presumptive eligibility.

457.380

Eligibility verification.

Subpart D—State Plan Requirements: Coverage and Benefits

457.401

Basis, scope, and applicability.

457.402

Definition of child health assistance.

457.410

Health benefits coverage options.

457.420

Benchmark health benefits coverage.

457.430

Benchmark-equivalent health benefits coverage.

457.431

Actuarial report for benchmark-equivalent coverage.

457.440

Existing comprehensive State-based coverage.

457.450

Secretary-approved coverage.

457.470

Prohibited coverage.

457.475

Limitations on coverage: Abortions.

457.480

Preexisting condition exclusions and relation to other laws.

457.490

Delivery and utilization control systems.

457.495

State assurance of access to care and procedures to assure quality and appropriateness of care.

Subpart E—State Plan Requirements: Enrollee Financial Responsibilities

457.500

Basis, scope, and applicability.

457.505

General State plan requirements.

457.510

Premiums, enrollment fees, or similar fees: State plan requirements.

457.515

Co-payments, coinsurance, deductibles, or similar cost-sharing charges: State plan requirements.

457.520

Cost sharing for well-baby and well-child care.

457.525

Public schedule.

457.530

General cost-sharing protection for lower income children.

457.535

Cost-sharing protection to ensure enrollment of American Indians/Alaska Natives.

457.540

Cost-sharing charges for children in families with incomes at or below 150 percent of the FPL.

457.555

Maximum allowable cost-sharing charges on targeted low-income children in families with income from 101 to 150 percent of the FPL.

457.560

Cumulative cost-sharing maximum.

457.570

Disenrollment protections.

Subpart F—[Reserved]

Subpart G—Strategic Planning, Reporting, and Evaluation

457.700

Basis, scope, and applicability.

457.710

State plan requirements: Strategic objectives and performance goals.

457.720

State plan requirement: State assurance regarding data collection, records, and reports.

457.740

State expenditures and statistical reports.

457.750

Annual report.

Subpart H—Substitution of Coverage

457.800

Basis, scope, and applicability.

457.805

State plan requirements: Procedures to address substitution under group health plans.

457.810

Premium assistance programs: Required protections against substitution.

Subpart I—Program Integrity

457.900

Basis, scope, and applicability.

457.902

Definitions.

457.910

State program administration.

457.915

Fraud detection and investigation.

457.925

Preliminary investigation.

457.930

Full investigation, resolution, and reporting requirements.

457.935

Sanctions and related penalties.

457.940

Procurement standards.

457.945

Certification for contracts and proposals.

457.950

Contract and payment requirements including certification of payment-related information.

457.955

Conditions necessary to contract as a managed care entity (MCE).

457.960

Reporting changes in eligibility and redetermining eligibility.

457.965

Documentation.

457.980

Verification of enrollment and provider services received.

457.985

Integrity of professional advice to enrollees.

Subpart J—Allowable Waivers: General Provisions

457.1000

Basis, scope, and applicability.

457.1003

HCFA review of waiver requests.

457.1005

Waiver for cost-effective coverage through a community-based health delivery system.

457.1010

Waiver for purchase of family coverage.

457.1015

Cost-effectiveness.

Subpart K—State Plan Requirements: Applicant and Enrollee Protections

457.1100

Basis, scope and applicability.

457.1110

Privacy protections.

457.1120

State plan requirement: Description of review process.

457.1130

Matters subject to review.

457.1140

Core elements of review.

457.1150

Impartial review.

457.1160

Time frames.

457.1170

Continuation of enrollment.

457.1180

Notice.

457.1190

Application of review procedures when States offer premium assistance for group health plans.

B. Subpart A—Introduction; State Plans for Child Health Insurance Programs and Outreach Strategies

1. Program Description (§ 457.1)

In proposed § 457.1, we set forth a description of the State Children's Health Insurance Program. Title XXI of the Social Security Act, enacted in 1997 by the BBA, authorizes Federal grants to States for provision of child health assistance to uninsured, low-income children. The program is jointly financed by the Federal and State governments and administered by the States. Within broad Federal rules, each State decides eligible groups, types and ranges of services, payment levels for benefit coverage, and administrative and operating procedures. We received no comments on this section and have retained the proposed language in this final rule.

2. Basis and Scope of Subchapter D (§ 457.2)

Proposed § 457.2 set forth the basis and scope of subchapter D. This subchapter implements title XXI of the Act, which authorizes Federal grants to States for the provision of child health assistance to uninsured, low-income children.

The regulations in subchapter D set forth State plan requirements, standards, procedures, and conditions for obtaining Federal financial participation (FFP) to enable States to provide health benefit coverage to targeted low-income children, as defined in § 457.310. We received no comments on this section and have retained the proposed language in this final rule.

3. Definitions and Use of Terms (§ 457.10)

This subpart includes the definitions relevant specifically to the State Children's Health Insurance Program under title XXI. In this subpart, we defined key terms that are specified in the statute or frequently used in this regulation. We note that those terms that are specific to certain subparts of this

regulation are defined at the opening of each subpart, however, all the terms are listed here. Because of the unique Federal-State relationship that is the basis for this program and because of our commitment to State flexibility, States have the discretion to define many terms.

We proposed the following definitions:

•

American Indian/Alaska Native (AI/AN)

means (1) a member of a Federally recognized Indian tribe, band, or group or a descendant in the first or second degree, of any such member; (2) an Eskimo or Aleut or other Alaska Native enrolled by the Secretary of the Interior pursuant to the Alaska Native Claims Settlement Act 43 U.S.C. 1601

et seq;

(3) a person who is considered by the Secretary of the Interior to be an Indian for any purpose; (4) a person who is determined to be an Indian under regulations promulgated by the Secretary.

•

Child

means an individual under the age of 19.

•

Child health assistance

has the meaning assigned in § 457.402.

•

State Children's Health Insurance Program (SCHIP)

means a program established and administered by a State, but jointly funded with the Federal government to provide child health assistance to uninsured, low-income children through a separate child health program, a Medicaid expansion program, or a combination of both.

•

Combination program

means a program under which a State provides child health assistance through both a Medicaid expansion program and a separate child health program.

•

Contractor

has the meaning assigned in § 457.902.

•

Cost-effective

has the meaning assigned in § 457.1015.

•

Creditable health coverage

has the meaning given the term “creditable coverage” at 45 CFR 146.113. Under this definition, the term means the coverage of an individual under any of the following:

—A group health plan (as defined in 45 CFR 144.103).

—Health insurance coverage (as defined in 45 CFR 144.103).

—Part A or part B of title XVIII of the Act (Medicare).

—Title XIX of the Act, other than coverage consisting solely of benefits under section 1928 (the program for distribution of pediatric vaccines).

—Chapter 55 of title 10, United States Code (medical and dental care for members and certain former members of the uniformed services, and for their dependents).

—A medical care program of the Indian Health Service or of a tribal organization.

—A State health benefits risk pool (as defined in 45 CFR 146.113).

—A health plan offered under chapter 89 of title 5, United States Code (Federal Employees Health Benefits Program).

—A public health plan. (For purposes of this section, a public health plan means any plan established or maintained by a State, county, or other political subdivisions of a State that provides health insurance coverage to individuals who are enrolled in the plan.)

—A health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e)).

The term “creditable health coverage” does not include coverage consisting solely of coverage of excepted benefits including limited excepted benefits and non-coordinated benefits. (See 45 CFR 146.145)

•

Emergency medical condition

has the meaning assigned at § 457.402.

•

Emergency

services has the meaning assigned in § 457.402.

•

Employment with a public agency

has the meaning assigned in § 457.301.

•

Family income

means income as determined by the State for a family as defined by the State.

•

Federal fiscal year

starts on the first day of October each year and ends on the last day of September.

•

Fee-for-service entity

has the meaning assigned in § 457.902.

•

Grievance

has the meaning assigned in § 457.902.

•

Group health insurance coverage

means health insurance coverage offered in connection with a group health plan as defined at 45 CFR 144.103.

•

Group health plan

means an employee welfare benefit plan, to the extent that the plan provides medical care as defined in section 2791(a)(2) of the PHS Act (including items and services paid for as medical care) to employees or their dependents directly (as defined under the terms of the plan), or through insurance, reimbursement, or otherwise, as defined at 45 CFR 144.103.

•

Health benefits coverage

has the meaning assigned in § 457.402.

•

Health maintenance organization (HMO) plan

has the meaning assigned in § 457.420.

•

Joint application

has the meaning assigned in § 457.301.

•

Legal obligation

has the meaning assigned in § 457.560.

•

Low-income child

means a child whose family income is at or below 200 percent of the poverty line for the size family involved.

•

Managed care entity (MCE)

has the meaning assigned in § 457.902.

•

Medicaid applicable income level

means, with respect to a child, the effective income level (expressed as a percentage of the poverty line) that has been specified under the State plan under title XIX (including for these purposes, a section 1115 waiver authorized by the Secretary or under the authority of section 1902(r)(2)), as of March 31, 1997, for the child to be eligible for medical assistance under either section 1902(l)(2) or 1905(n)(2) of the Act.

•

Medicaid expansion program

means a program where a State receives Federal funding at the enhanced matching rate available for expanding eligibility to targeted low-income children.

•

Post-stabilization services

has the meaning assigned in § 457.402.

•

Poverty line/Federal poverty level

means the poverty guidelines updated annually in the

Federal Register

by the U.S. Department of Health and Human Services under authority of 42 U.S.C. 9902(2).

•

Preexisting condition exclusion

has the meaning assigned at 45 CFR 144.103, which provides that the term means a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the first day of coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before that day. A preexisting condition exclusion includes any exclusion applicable to an individual as a result of information that is obtained relating to an individual's health status before the individual's first day of coverage, such as a condition identified as a result of a pre-enrollment questionnaire or physical examination given to the individual, or review of medical records relating to the pre-enrollment period.

•

Premium assistance for employer-sponsored group health plans

means State payment of part or all of premiums for group health plan or group health insurance coverage of an eligible child or children.

•

Public agency

has the meaning assigned in § 457.301.

•

Separate child health program

means a program under which a State receives Federal funding from its title XXI allotment under an approved plan that obtains child health assistance through obtaining coverage that meets the requirements of section 2103 of the Act.

•

State

means all States, the District of Columbia, Puerto Rico, the U.S.

Virgin Islands, Guam, American Samoa and the Northern Mariana Islands.

•

State health benefits plan

has the meaning assigned in § 457.301.

•

State plan

means the approved or pending title XXI State child health plan.

•

State program integrity unit

has the meaning assigned in § 457.902.

•

Targeted low-income child

has the meaning assigned in § 457.310.

•

Uncovered child

means a child who does not have creditable health coverage.

•

Well-baby and well-child care services

means regular or preventive diagnostic and treatment services necessary to ensure the health of babies and children as defined by the State. For purposes of cost sharing, the term has the meaning assigned at § 457.520.

We note that comments concerning definitions that are specific to certain subparts are discussed at the opening of those subparts. We received the following comments on the terms defined in this section:

Comment:

We received a comment suggesting that we use the terms “SCHIP”, “Medicaid expansion program” and “separate child health program” consistently throughout the regulation. The commenter noted that we repeatedly use the term “SCHIP” when it appears the term “separate child health program” is meant.

Response:

We agree with the commenter and have revised the rule for clarity and consistency. Throughout this regulation, we use the terms “Medicaid expansion program” and “separate child health program” to refer to the different types of programs that States may establish under title XXI. These terms are defined at § 457.10. We use the term “SCHIP”, also defined at § 457.10, to refer to the State's title XXI program regardless of whether it is a Medicaid expansion program or a separate child health program.

Also for purposes of clarity and consistency, we have added definitions of the terms “applicant”, “enrollee”, “health care services”, and “uninsured or uncovered child” to the definitions section of the final rule. We felt that it was important to make clear both the distinctions and the similarities between these two groups of children for purposes of SCHIP (either individually or through action by family or other interested parties).

“Applicant” means a child who has filed an application (or who has had an application filed on his/her behalf) for health benefits coverage through SCHIP. A child is an applicant until the child receives coverage through SCHIP. An “enrollee” is a child who receives health benefits coverage through SCHIP. “Health care services” means any of the services, devices, supplies, therapies, or other items listed in § 457.402(a). “Uncovered child or uninsured child” means a child who does not have creditable health coverage.

We have added a few definitions related to presumptive eligibility under Subpart C, including “qualified entity”, “presumptive income standard” and “period of presumptive eligibility”. The Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) expanded the list of entities specifically eligible to make presumptive eligibility determinations and extended the provision related to presumptive eligibility for children under Medicaid to separate child health programs.

Finally, we have added the definition of “health services initiatives” to the overall definitions section because it is used throughout the regulation. This term was previously discussed only in Subpart J, in relation to the waiver authority to provide services through community-based delivery systems.

Comment:

One commenter indicated that the definition of AI/AN should include a reference to the standards used by the Secretary to define an AI/AN. The commenter agreed with our use of section 4(c) of the Indian Health Care Improvement Act, 25 U.S.C. 1603(c) to define AI/AN. The commenter believes our proposed definition will assist States in meeting requirements regarding the AI/AN population.

Another commenter indicated that our use of the definition of AI/AN set forth in the Indian Health Care Improvement Act is appropriate for purposes of the premium and cost sharing exclusion. However, the commenter notes that the proposed definition of AI/AN set forth at § 457.10 is narrowed by the cost-sharing provisions at § 457.535, which specify that only American Indians and Alaska Natives who are members of a Federally recognized tribe are excluded from cost-sharing charges. The commenter believes that the definition of AI/AN at § 457.535 is more restrictive than that set forth in the Indian Health Care Improvement Act and has no basis in title XXI. The commenter believes that the definition at § 457.535 is also inconsistent with the proposed consultation provisions of § 457.125(a), which expressly requests that States consult with “Federally recognized tribes and other Indian tribes and organizations in the State * * *” The commenter asserted that there is little point in consulting with non-Federally recognized tribes about enrollment in SCHIP if the children of those tribes are not excluded from premiums and cost sharing.

Response:

We have modified the definition of AI/AN, after discussion with IHS, to make the definition as consistent as possible with both the Indian Health Care Improvement Act (IHCIA) and the Indian Self Determination Act. The definition no longer includes descendants, in the first or second degree, of members of federally recognized tribes, and we have removed the reference in paragraph (4) to regulations to be promulgated by the Secretary. We believe that this definition is substantially equivalent to, and no more restrictive than, the definition in the IHCIA, but is consistent with the flexibility available under the Indian Self Determination Act. We have used this definition because it gives full weight to federally recognized government-to-government relationship between the federal government and tribal governments. We do not intend, however, to restrict the States' ability to engage in a wider scope of consultation in developing their programs.

Comment:

One commenter indicated that the definition of “child” is inconsistent with their State's statute which considers children up to age 19 for child support purposes. Another commenter supports HCFA's definition of family income as it gives States the flexibility to define income and family.

Response:

The definition of “child” was taken from section 2110(c) of the Act. With regard to the definition of family income, we appreciate the support and want to give States as much flexibility as possible when defining this aspect of their SCHIP programs.

Comment:

We received a comment on the definition of premium assistance for employer-sponsored group health plans. The commenter states that according to the definition of this term at § 457.10, a State can pay all or part of the premium. The commenter notes that this definition appears to conflict with proposed § 457.810(b)(2)(i) and (ii) which require that an employer contribute 60 percent of the cost of the premium, or a lower amount if the State can show that the average contribution in the State is lower than 60 percent, as a protection against substitution of coverage.

Response:

The commenter is correct. In order for the purchase of employer-sponsored coverage to be cost-effective in accordance with § 457.810(b)(2), it was our intent to say that the State can pay for all or part of the enrollee's share of the premium for group health plan coverage of an eligible child or children. It is unlikely that a State's payment of

all of the premium would meet the cost-effectiveness test. Accordingly, we have revised the definition of premium assistance for employer-sponsored group health plans to indicate that a State can pay for all or part of the enrollee's share of the premium.

It should also be noted that, in this final rule we have made some significant changes in the list of terms defined, in order to clarify terminology for health benefits coverage provided through a group health plan or group health coverage. We defined the term “premium assistance for employer-sponsored group health plans.” We also used the term “employer-sponsored group health plan” and “employer-sponsored group health plan coverage” throughout the proposed rule.

In hopes of simplifying discussions of our policy, we have elected to create a new term that is intended to be inclusive of all types of group health coverage. We no longer use the term “employer-sponsored” prior to references to group health plan or group health insurance coverage in this final rule. We believe that the use of the term “employer-sponsored insurance” or “employer-sponsored group health plan” could unintentionally narrow the scope of permitted premium assistance programs and wanted to avoid that result. Under HIPAA, the term “group health plan” has a very specific legal meaning and refers to a broad array of coverage arrangements; it does not solely refer to health plans offered by a single employer. Therefore, we did not want to cause confusion around the possible scope of programs permitted under Title XXI by using the term “employer-sponsored” in connection with provisions relating to premium assistance programs and rather, refer to all of these types of programs accordingly.

Comment:

One commenter suggested that HCFA include in the final rule the definition of “health services initiatives” set forth in the August 6, 1998 letter to State Health Officials. In the letter, the term is defined as “activities that protect the public health, protect the health of individuals or improve or promote a State's capacity to deliver public health services and/or strengthens resources needed to meet public health goals.”

Response:

We agree with the commenter. We have added the definition of “health services initiatives” as set forth in the August 6, 1998 letter.

Comment:

Commenters asserted that the definition of well-baby and well-child care for purposes of cost sharing (set forth at § 457.520) be used in three other sections of the regulation: Definitions and use of terms § 457.10; Child health assistance and other definitions § 457.402; and Health benefits coverage options § 457.410(b)(2). One commenter urged that our recognition in § 457.520 that preventive oral health care is part of well-baby and well-child care be extended to the definition of this term at §§ 457.10, 457.402, 457.410(b)(2). The commenter believes that the definition of well-baby and well-child care which includes preventive oral health care should not be treated simply as a category of services left to State discretion for definitional purposes. The commenter noted that the Medicaid program provides for a comprehensive set of services and screenings for oral health care services through EPSDT services. The commenter believes that a clearly defined set of well-baby and well-child care benefits is essential to ensuring a baseline of care in separate child health programs.

Response:

EPSDT services are required to be provided to eligible Medicaid beneficiaries under the age of 21 and are defined at section 1905(r) of the Act. Title XXI does not contain the same type of definition for well-baby and well-child care provided under a separate child health program. Therefore, States have the flexibility to design health benefits packages that best fit their needs and resources. In addition, for States that have elected benchmark plans as their health benefits option, these plans may already include standards for furnishing well-baby and well-child care; and it would be inconsistent with the flexibility provided by the statute in this area, as well as cause confusion among plans and providers if we implemented another definition.

Although most separate child health plans do include some type of dental coverage, it is by no means common. Therefore, it is not appropriate to require these services as part of well-baby well-child care. If dental coverage is provided, however, it should be included as part of well-baby well-child care for purposes of cost sharing. Specifically, dental care can be viewed as the oral health equivalent of immunizations in that it can prevent most cavities and subsequent tooth loss, both of which are highly correlated to poverty and lack of access to dental care. Second, we found that the prevailing practice among State employee plans and large HMOs is to pay 100 percent for any routine preventive and diagnostic dental benefits offered for children. Therefore, consistent with section 2103(e)(2) of the Act “no cost-sharing on benefits for preventive services” cost sharing may not be applied to these services, if a State chooses to offer them under the State plan.

Comment:

Commenters suggested including the word “adolescent” in the definition of well-baby and well-child care services. The commenters believe that we should focus on the unique health needs of adolescents, which make up approximately 39 percent of SCHIP eligible youth because their health needs differ from those of younger children. The commenters also urged HCFA to list specifically in the regulation medical sources that have guidelines for regular or preventive diagnostic and treatment services for infants, children and adolescents. These sources should include the American Academy of Pediatrics' “Guidelines for Health Supervision of Infants, Children and Adolescents,” the American Medical Association's “Guidelines for Adolescent Preventive Services,” and the American College of Obstetricians and Gynecologists' “Primary and Preventive Health Care for Female Adolescents.”

Response:

We have not adopted this suggestion. The definition of child for purposes of SCHIP at § 457.10 and section 2110(c)(1) of the Act indicates that a “child” is an “individual under the age of 19.” Adolescents under age 19 are clearly included in this age group and therefore we have not included this term in referring to well-baby and well-child care. We encourage States to adopt one of the guidelines mentioned by the commenter, but we have not required adherence to a particular definition.

The commenters urged HCFA to list specifically in the regulation medical sources that have guidelines for regular or preventive diagnostic and treatment services for infants, children and adolescents. The examples of medical sources that are listed in the preamble are meant to serve as recommendations not requirements. The American Medical Association's “Guidelines for Adolescent Preventive Services,” is an acceptable medical standard of practice for adolescents and States may use this standard if they choose.

Comment:

We received numerous comments on proposed § 457.402(b) and (c), which set forth the definitions of emergency medical condition and emergency services, respectively. Many commenters supported the use of the prudent layperson standard in defining emergency services. Several commenters encouraged HCFA to retain this language because some State Medicaid programs and managed care organizations are not in compliance

with the prudent layperson standard and have denied payment for emergency services because prior authorization was absent. The commenters recommended that HCFA closely monitor the States' programs and managed care organizations on this issue.

Response:

We note the support for this provision. With respect to the definition of emergency services under a separate child health plan, States will need to review their contracts with managed care organizations and may need to revise their contracts in order to comply with this requirement. HCFA will monitor States for compliance with this requirement as described in § 457.40 of the final regulation.

Comment:

One commenter stated that the required emergency care provisions may disqualify many employer plans. The commenter agreed that such policies can enhance access to emergency care. However, the commenter noted that States using premium assistance programs to subsidize employer-sponsored coverage lack control over emergency coverage. Unlike health plans with direct contracts to provide Medicaid or SCHIP services, requirements for employer-sponsored plans are set by State legislative mandate or dictated by the insurance market. If employer-sponsored plans do not adopt the prudent layperson standard or abandon pre-authorization for emergency care, their coverage may not qualify for SCHIP premium assistance, despite other elements that facilitate emergency care. The emergency care provisions could therefore pose a major barrier to using premium assistance programs for SCHIP purposes.

The commenter recommended that HCFA recognize that the emergency care requirements of the proposed regulations may exclude many valuable employer plans from SCHIP premium assistance programs. To facilitate the use of premium assistance and to reflect the flexibility provided by title XXI, the commenter suggests that HCFA should consider State approaches to ensuring access to emergency care on a case-by-case basis.

Response:

We appreciate the recognition that the prudent layperson standard enhances access to emergency care. While we understand the commenter's concerns about the difficulty posed by these requirements if States seek to provide premium assistance for available group health plan coverage, we cannot permit States to deny emergency care to children covered through group health plans. While we encourage States to provide premium assistance for group health plan coverage, it is important that all SCHIP enrollees receive necessary emergency care. States will need to carefully review group health plans to determine whether the required emergency services provisions required by this regulation are in place. If they are not, the State must disqualify those plans from participation in the program or ensure that these requirements are met by providing coverage for emergency services through a wrap-around coverage package to supplement the group health plan coverage.

Comment:

One commenter noted that the definition of emergency services should include the availability of necessary resources to evaluate and treat illness and injury.

Response:

We have revised the definition of emergency services to clarify the scope of such services. Because the terms “emergency medical condition” and “emergency services” are used throughout this final regulation, we have moved the definitions for these terms to § 457.10. Section 457.10 defines “emergency services,” in part, as services that are “needed to evaluate or stabilize an emergency medical condition.” “Emergency medical condition” is defined as a medical condition manifesting itself by acute symptoms of sufficient severity such that the absence of immediate medical attention could result in: serious jeopardy to the health of the individual or, in the case of a pregnant woman, the health of a woman or her unborn child; serious impairment of bodily function; or serious dysfunction of any bodily organ or part. Section 457.495 requires that States describe in their State plan the methods they use to assure the quality and appropriateness of care and access to services covered under the plan. Specifically, States must assure access to emergency services. We are not including requirements for State monitoring of such services in the definition because we address such monitoring separately at § 457.495. Compliance with that section includes an assurance that enrollees have access to required emergency services.

Comment:

One commenter referenced comments on the proposed Medicaid managed care rules that concerned consistency with Emergency Medical Treatment and Active Labor Act (EMTALA) requirements. The commenter suggested HCFA should coordinate its efforts to enforce relevant requirements for coverage of emergency services with EMTALA enforcement, and should work with OIG, State Medicaid agencies, health plans, and children's health programs to protect Medicare, Medicaid, and SCHIP enrollees.

Response:

The comments submitted on the Medicaid managed care regulation are beyond the scope of the proposed rule. Responses to comments received on the Medicaid managed care proposed rule will be addressed in the final publication of that regulation.

With respect to the issue of consistent Federal rules, we are mindful of other definitions of emergency services and have attempted to reconcile our approach with other approaches to the extent permitted by the statute. As for coordination of enforcement efforts, HCFA will monitor the operation of State plans as described in § 457.40 of this final regulation and work with States and other Federal agencies to the extent possible in enforcing the requirements relating to coverage of emergency services.

Comment:

One commenter mentioned the need to provide for appropriate payment to hospitals for services provided within the scope of the hospital's obligations under EMTALA. Hospitals feel that if the government requires certain medical screening and other stabilizing treatment, the government should also address how hospitals will be paid for these services. They also noted that obtaining payment for services covered under the prudent layperson standard will help to address the financial burden borne by hospitals.

Response:

We refer the commenter to § 457.940 for information on payment rates under separate child health plans. We encourage States to ensure that provider payments are adequate to promote an adequate level of provider access and provider participation and the appropriate provision of services.

Comment:

One commenter noted that freestanding urgent care facilities must have the capability to identify children with emergency conditions, stabilize them, and provide timely access to further necessary care. The commenter also stated that urgent care facilities must have appropriate pediatric equipment and staff trained and experienced to provide critical support until patients are transferred for definitive care. In addition, the commenter noted that it is necessary for urgent care facilities to have prearranged access to comprehensive emergency services through transfer and transport agreements to which both facilities adhere. Available and appropriate modes of transport should be identified in advance.

The commenter also noted that after-hours urgent care clinics used as a resource for pediatric urgent care, should solicit help from the pediatric

professional community. Moreover, in this commenter's view, pediatricians who are prepared to assist in the stabilization and management of critically ill and injured children should be accessible. Pediatricians responsible for managing the health care of children may occasionally need to use the resource of urgent care facilities after hours. When such clinics are recommended to patients, pediatricians should be certain that the urgent care center is prepared to stabilize and manage critically ill and injured children.

Response:

As noted earlier, under § 457.495 of this final regulation, States must assure appropriateness of care and access to emergency services. A State has flexibility to determine the providers who furnish services, including emergency services. However, a State using free-standing or urgent care facilities as providers under its SCHIP plan for the delivery of emergency services, must meet the requirements of § 457.495 in doing so.

As far as the suggestion that available and appropriate modes of transport be identified in advance, we encourage States and urgent care providers to have arrangements to ensure that transportation is available to appropriate facilities; however the terms of such arrangements are left to States' discretion.

Comment:

One commenter is pleased with the guaranteed access to emergency services without prior authorization; however, the commenter was concerned about what happens in a State that provides for no mental health coverage in its State plan.

Response:

Under a separate child health program, States are given flexibility, within the confines of the health benefits coverage options outlined in § 457.410, to design their benefit packages. There is no requirement for a State to provide mental health services under its State plan unless the health benefits coverage option selected by the State includes those services. However, we encourage States to provide coverage for mental health services. In addition, we note that emergency mental health services that meet the prudent layperson definition of “emergency medical condition” must be available regardless of whether mental health services are covered under the separate child health program.

Comment:

Three commenters indicated that children who were covered by section 1115 demonstration projects with a limited benefit package should not be considered to have been recipients of Medicaid. The commenters urged HCFA to provide clarification on the treatment of children eligible for Medicaid under a section 1115 demonstration project that limited eligibility or provided a limited range of services and the availability of enhanced matching for such children.

Response:

We agree with the general principle expressed by the commenters that it would not further the purpose of title XXI to exclude from children who were eligible only under a section 1115 demonstration project that was significantly limited in scope and, therefore, was not generally comparable with traditional Medicaid coverage.

In regard to the definition of “targeted low income child” at section 2110(b)(1)(C) of the Act, children are excluded from coverage in a separate child health program only when they are found eligible for Medicaid. These comments are relevant, however, the interpretation of the general condition set forth at section 2105(d)(1) of the Act which was implemented by the regulatory provision at 42 CFR 457.622(b)(5), contained in the financial rule published May 24, 2000 (65 FR 33616). That provision merely codified section 2105(d)(1) into regulations without interpretation. In addition, the factors discussed by the commenters affect how we look at “Medicaid applicable income level” which is part of the financial need standard that a targeted low-income child must meet.

We have added an additional paragraph to § 457.310 that clarifies that policies of the State's title XIX plan do not include statewide section 1115 demonstration projects that covered an expanded group of eligible children but that either (i) did not provide inpatient hospital coverage, or (ii) did not impose a general time limit on coverage but did limit eligibility by both allowing only children who were previously enrolled in Medicaid to qualify and imposing premiums as a condition of participation in the demonstration.

We have excluded these types of demonstrations because they were particularly narrow in scope and not of the type intended to be encompassed by the reference to “Medicaid applicable income level” in section 2110(b)(4) of the Act. This provision ensures that separate child health programs serve low-income children whose income exceeds preexisting Medicaid income levels. However, we do not believe the provision was intended to preclude States from claiming enhanced matching funds for expanded coverage to children whose income is below the demonstration project eligibility thresholds in place as of March 31,1997, if those programs did not offer comprehensive coverage or limited eligibility to individuals who were previously enrolled in Medicaid. Our experience with SCHIP and our increased understanding of how this provision is affecting States' ability to expand coverage have led us to agree with the commenters that an overly broad interpretation of the provision is contrary to the primary purpose of the statute. We have clarified this provision in the final rule accordingly. As a result, children previously eligible for these types of demonstration projects may be included in a separate child health program as a “targeted low-income child.”

4. Basis, Scope, and Applicability of Subpart A (§ 457.30).

As proposed, this subpart interprets sections 2101(a) and (b), and 2102(a), and 2106, and 2107(c), (d) and (e) of title XXI of the Social Security Act and sets forth the related State plan requirements for a SCHIP program. It includes the requirements related to administration of the State program, the general requirement for a State plan and the process for Federal review of a State plan or plan amendment. This subpart applies to all States that seek to provide child health assistance through SCHIP.

We received no comments on this section and have therefore retained the regulation text language as proposed, except for technical changes.

5. State Program Administration (§ 457.40)

Consistent with section 2106(d)(1) of the Act, at § 457.40(a) we proposed that it is the State's responsibility to implement and conduct its program in accordance with the approved State plan and plan amendments, the requirements of title XXI and title XIX (as appropriate), and the regulations in chapter IV.

To ensure that the State is operating its program accordingly, we indicated that HCFA would review the operation of the program through on-site review or monitoring of State programs. At § 457.40(a), we also proposed that HCFA would monitor the operation of the approved State plan and plan amendments to ensure compliance with title XXI, title XIX (as appropriate) and the regulations in chapter IV. In the preamble to the proposed rule we discussed in detail the general goals for the monitoring provisions as well as expected outcomes of monitoring. We noted that the review process and the implications of noncompliance are specifically addressed in § 457.200, which was set forth in the May 24, 2000

final financial regulation, HCFA-2114-F. (65 FR 33616)

To ensure involvement in and commitment to the program at the highest level of State government, we proposed in § 457.40(b) to require that the State plan and plan amendments be signed by the Governor or by an individual who has been delegated such authority by the Governor. This individual could be the Secretary of Health, the SCHIP Administrator, the Medicaid Director or any other individual who has been delegated authority by the Governor to submit the State plan or plan amendment. In order to facilitate communication between the appropriate State and HCFA staff, we proposed in § 457.40(c) to require that the State plan or plan amendment identify the State officials who are responsible for program administration and financial oversight.

We noted in the preamble that when the passage of State enabling legislation is required to implement a State plan, a State can submit its State plan application before the passage of the legislation. States must indicate in their application if such legislation is necessary and when it will be in place. At § 457.40(d), we proposed that the State plan must include an assurance that the State will not claim expenditures for child health assistance prior to the time that the State has legislative authority to operate the State plan or plan amendment as approved by HCFA.

Comment:

One commenter recommended that § 457.40(a) be amended to clarify that States must operate State plans and plan amendments not only in accordance with titles XIX and XXI, but also in accordance with Federal civil rights laws, including title VI of the Civil Rights Act of 1964 and the Americans With Disabilities Act. Accordingly, the commenter recommended that HCFA also monitor the operation of the State plans and plan amendments for compliance with these laws.

Response:

It is true that States must operate State plans and plan amendments in accordance with Federal civil rights laws, and we require in § 457.130 that a State provide an assurance in its State plan that it will comply with all applicable civil rights requirements. In addition, § 457.40(a) requires that States implement their programs in accordance with the regulations of this chapter, which include § 457.130. Therefore, we do not believe that it is necessary to amend § 457.40(a) to reference civil rights provisions. Moreover, while HCFA will monitor compliance with § 457.130, the Office for Civil Rights is the primary authority within the Department for monitoring programs and enforcing federal civil rights laws.

Comment:

A few commenters suggested that States should be able to designate the program officials by title only, rather than by name, so that the State plan does not need to be amended when there is a staffing change. Another commenter suggested that a Governor or person designated by the Governor inform HCFA in writing of the names of the persons who are responsible for program administration and financial oversight. Another commenter requested that HCFA add a requirement that States identify in the State plan or in a subsequent State plan amendment the State officials who are responsible for providing data on children's enrollment in SCHIP and Medicaid.

Response:

We agree with the commenters that it is unnecessary to require State plan amendments when there is a staffing change. Our goal of facilitating communication between the appropriate State staff and HCFA staff would be accomplished by the identification of program officials by position title. As proposed, the regulation text did not indicate that this practice would suffice, and the preamble had indicated that the names of the officials would be required. Therefore, we are revising § 457.40(c) to require that the State must identify, in the State plan or State plan amendment, the position title of the State officials who are responsible for program administration and financial oversight. While we agree with the importance of obtaining enrollment data on a timely basis, we do not believe that the State plan or plan amendments must include a list of program officials who are responsible for specific topics addressed in the State plan, including the official responsible for providing enrollment data. An interested party may contact the individual identified as the official responsible for program administration for specific information on the State program.

Comment:

One commenter supported the provision of the proposed rule that prohibits the implementation of a State plan amendment until the amendment had been authorized through enabling legislation by the State legislature if such authorization is required. In this commenter's opinion, “this represents an important recognition of the ongoing role of the State legislature with the design and operation of SCHIP.”

Response:

We appreciate the support of the commenter.

Comment:

A few commenters expressed their support for the proposal stated in the preamble to conduct formal State reviews after the first anniversary of each State plan to ensure compliance with the requirements of titles XXI and XIX. More specifically, one commenter commended HCFA for including HRSA officials in the State review.

Response:

We appreciate the support of the commenters.

Comment:

One commenter found it disappointing that the focus of monitoring of State programs, as set out in the preamble, appeared to be punitive in nature. In the view of this commenter, it appeared that the Department was anticipating the failure of the States to comply and that it therefore must be ready to take corrective and enforcement actions. The commenter suggested that, at the very least, “identifying the need for corrective action, enforcement and improvement within the State title XXI programs” should be the last of the four listed expected outcomes of the monitoring.

Response:

We did not intend to be punitive, nor do we anticipate the failure of the States to comply with statutory or regulatory requirements or the specifications of the approved State plan. During the monitoring visits that have taken place thus far, the Department has focused on identifying best practices and needs for technical assistance rather than on compliance. In keeping with the commenters' views, we have rearranged the list of expected outcomes of monitoring as follows: (1) Recognizing and sharing best practices that may lead to increased enrollment; (2) identifying States' needs for technical assistance; (3) informing HCFA as we prepare for the Secretary's report to Congress; and (4) identifying the need, if any, for corrective action, enforcement and improvement within State title XXI programs.

Comment:

One commenter recognized that ongoing review of State programs is an evolving process, but suggested that HCFA identify either in this regulation or in a separate policy document “the core set of key policy areas” that it intends to monitor and to establish a protocol for doing so. The commenter specifically recommended adopting as key policy areas the methods to address the needs of racial and ethnic minority children and the needs of children with disabilities.

Response:

The HCFA Central Office and Regional Offices develop procedural guidelines to use in the ongoing operation of the monitoring visits and review process. In the flexible Federal review process that we have established, we will monitor to ensure consistent implementation of the core

set of key policy areas specifically described in the title XXI statute. These areas include enrollment and retention procedures; outreach; coordination with other programs; quality, appropriateness and access to care; and other areas related to compliance with the statute, regulations and approved State plan. Because the review process may change over time and may vary from region to region, depending upon specific State needs and circumstances, we do not believe it is appropriate to further specify these procedures in regulation. We agree with the commenter's concern regarding the needs of racial and ethnic minority children, as well as children with special needs, and we plan to incorporate these issues into our monitoring as appropriate. Furthermore, in recognition of the importance of assessing how SCHIP is addressing the needs of racial and ethnic minority children, we have added reporting requirements to subpart G, at § 457.740(a)(2)(ii) for data on race, ethnicity and primary language as well as gender. We hope that these data, together with ongoing monitoring, will enable States, HCFA, and other interested parties to assess these important policy areas.

Comment:

Many commenters indicated that it is essential for HCFA to add a requirement that State and local community based organizations and “stakeholders” be involved in HCFA's annual reviews of State SCHIP operations. One commenter explained that it is a practical reality that State officials are at times constrained in their ability to identify problems in their programs candidly; therefore, the inclusion of a diverse group of stakeholders would considerably strengthen HCFA's understanding of State operations and would improve accountability of State programs to their constituents. One commenter recommended including language to recognize the critical role that consumers, advocates, providers, and others play in the design, implementation, and monitoring of SCHIP programs. One of these commenters suggested a public hearing as part of the review. Several commenters expressed a desire that, in providing public input, HCFA provide these organizations and stakeholders with draft and final reports generated through the review process.

Response:

We recognize the importance of public involvement in the monitoring process. As part of our ongoing monitoring of programs, including site visits, we have met with advocates, providers and other interested parties, and we have incorporated such contacts into our monitoring protocol. In many cases, as part of the SCHIP site visits, the Regional Office staff have met with advocates and providers to gain additional input on the State's programs. We plan to regularize such conduct, but do not plan to hold public hearings in the course of monitoring of State programs. Moreover, HCFA encourages stakeholders to contact their Regional Office at any time to inform them of issues, suggestions and concerns. The statute specifically requires public input in the development and implementation of SCHIP. Section 2107(c) of the Act, which requires public involvement, and the requirement at § 457.120, reflect the recognition of the importance of involvement of interested parties in the initial design and ongoing implementation of SCHIP. While we will value public input in the monitoring process, to avoid confusion that may be caused by inaccuracies in a draft monitoring report, we do not plan to release draft reports. We will provide final reports to interested parties upon request and encourage such parties to inform us of their comments on these reports.

Comment:

One commenter encouraged HCFA to consult with key State level agencies, including Title V Maternal and Child Health and Children with Special Health Care Needs (MCH/CSHCN) programs, in conducting the reviews. In the views of this group, agencies that run State title V MCH/CSHCN programs are involved in SCHIP outreach and enrollment and are vital resources for understanding how SCHIP is working and, particularly, how it fits with other child and family services. One State specifically stated that the Child Support Enforcement (CSE) program should be included in the monitoring because CSE needs to be made aware of children in the child support enforcement caseload that are covered by this type of insurance.

Response:

We will monitor for compliance with all regulatory requirements, including the requirement that States coordinate with other sources of health benefits coverage. This may include consulting with other State agencies or programs in conducting reviews as appropriate based on the unique circumstances in the State. We also encourage States to include these partners in the review process. We agree that the Child Support Enforcement agency is an important partner in coordination efforts in the SCHIP program, and issued guidance to this effect in a Fact Sheet on SCHIP and CSE released in January 1999. While we will not require their participation in the monitoring process, our Regional Offices have and will continue to work with State SCHIP agencies to help them identify key partners, including CSE agencies. Further discussion of our requirements for coordination with other programs is found in our responses to comments on § 457.80.

Comment:

One commenter recommended that State legislators be included in HCFA site visits that occur as part of the review process.

Response:

Because the legislative relationship with SCHIP is different in each State, States may have a widely varying degree of State legislator involvement in the ongoing implementation of their SCHIP programs. State legislators have a key role in the development and oversight of SCHIP programs; however, we do not believe it is appropriate for HCFA to require the inclusion of State legislators in every site visit, as that would intrude into the relationship between State executive and legislative branches. We are, however, willing and interested in meeting with State legislators who have an interest in SCHIP and appreciate their involvement and the special role they play in making SCHIP a success in their home State.

6. State Plan (§ 457.50)

We proposed that the State plan is a comprehensive written statement submitted by the State to HCFA for approval. The State plan describes the purpose, nature, and scope of its SCHIP and gives an assurance that the program will be administered in conformity with the specific requirements of title XXI, title XIX (as appropriate), and the regulations in this chapter. The State plan contains all information necessary for HCFA to determine whether the plan can be approved to serve as a basis for Federal financial participation (FFP) in the State program. We stated in the preamble that an approved State plan is comprised of the initial plan submission, responses to requests for additional information, any other written correspondence from the State and subsequent approved State plan amendments.

Comment:

Several commenters strongly recommended consolidating the State plan into one up-to-date document rather than allowing the “plan” to be a conglomeration of the “initial plan submission, responses to request for additional information and subsequent approved State plan amendments.” Without such consolidation, the commenter indicated that the job of understanding the details of the program is extremely difficult for

policy makers, advocates, and researchers.

Response:

We agree that, as some States receive approval for multiple State plan amendments, it will become more difficult to understand the details of the State programs. At this point, an approved State plan is comprised of the initial plan submission, responses to requests for additional information, any other written correspondence from the State related to provisions in the State plan or amendment and subsequent approved State plan amendments. However, in the future, we will request that all States submit consolidated State plans. At such time, we will issue guidance on the format and time frames for submission of a consolidated State plan.

Comment:

A commenter asked that, in order to ensure that it will be possible to track States SCHIP policy choices over time, HCFA should commit to keep a copy of each States up-to-date, approved State plan in effect at the beginning of each fiscal year for future reference. Thus, the commenter observed, even if a State plan is subsequently amended, HCFA will have a record of the policies in place for any given State at the beginning of each fiscal year. By keeping an annual “snapshot” of States' SCHIP plans, the commenter noted that HCFA will make it possible for Federal, State, and local policy makers, as well as researchers, to evaluate the impact over time of States' SCHIP implementation choices.

Response:

We will continue to keep a record of all State plans, including historic provisions with the effective date of each State plan amendment, so that we will have record of, and be able to make available to others, the policies that were in effect at any given time throughout the operation of a State's program.

Comment:

One commenter stated that the plan should be “easily accessible.” One commenter suggested that the preamble language state that the approved State plan, including any attachments, will be made available to the public on the web.

Response:

We will continue to make an effort, as resources permit, to make the approved State plan and any approved State plan amendments available to the public on the web site or through links to State sites. To facilitate the posting of this material, we encourage States to submit proposed plan amendments and responses to requests for additional information in an electronic format.

7. Amendments (§ 457.60)

Section 2106(b)(1) of the Act permits a State to amend its approved State plan in whole or in part at any time through the submittal of a plan amendment. We proposed in § 457.60(a) that the State plan must be amended whenever necessary to reflect changes in Federal law, regulations, policy interpretations or court decisions; changes in State law, organization, policy or operation of the program; or changes in the source of the State share of funding. In the preamble to the proposed rule, we discussed in detail our view that only changes that are substantial and noticeable would require amendments. Specifically, we stated that changes in program elements that would not ordinarily be required to be included in the State plan at all would not require an amendment. We proposed in § 457.60(b) that when the State plan amendment makes any modification to the approved budget, a State must include an amended budget that describes the State's planned expenditures for a three year period.

Comment:

A few commenters suggested that HCFA provide SCHIP programs with “preprints” such as those provided in the Medicaid program to inform the State of changes in Federal law and regulations.

Response:

We agree with commenters that providing preprints would assist States in complying with changes in Federal laws, regulations and policies. In Medicaid, a “preprint” is similar to the State plan template we have provided in SCHIP, where the State agrees to administer the Medicaid program in accordance with federal law and policy. The Medicaid State plan preprint sets forth the scope of the Medicaid program, including groups covered, services provided, and reimbursement rates for providers. In SCHIP, we have provided States with a State plan template, which also serves as the template for amendments to the State plan, and lays out in a series of questions and check boxes a guideline for States to follow in explaining the components of their program. We will be revising this template to reflect the provisions of this final regulation.

Comment:

Many commenters asked that States be given a reasonable amount of time to implement new Federal requirements. One State specifically recommended that each State's contracting cycle time be used as the appropriate implementation time frame for new requirements. Another commenter urged the Department to take into consideration the many factors outside of Governors' control, such as contract cycles and legislative sessions, in determining when States must achieve final compliance.

Another commenter strongly urged that HCFA add a new subsection to § 457.60 that establishes a procedure by which States can submit State plan amendments that bring their State plans into compliance with the requirements of title XXI as set forth in the final version of the regulation. This commenter suggested that HCFA give States no more than six months after the issuance of the final regulations to submit State plan amendments that bring them into compliance.

Response:

Most of the rules set forth in these final regulations are not new; in most cases, these rules reflect the pre-regulatory guidance issued since SCHIP was enacted into law. However, we note the commenters' concern that States need a reasonable amount of time to implement new Federal rules that have been promulgated in response to the comments received. We have considered that compliance with these final rules may require State legislation or changes to contracts. We will require that States come into conformity with new requirements within 90 days of publication of this rule, or if contract changes are necessary, the beginning of the next contract cycle. By contract cycle, we mean the earlier of the date of the end of the original period of the existing contract, or the date of any modification or extension of the contract (whether or not contemplated within the scope of the contract). If a new regulatory provision requires a new or amended description of procedures in the State plan, the State must implement the procedures within the above time frame, but the State plan amendment does not necessarily need to be submitted within the 90-day period as provided in § 457.65(a)(2). For example, if this final regulation were published on January 1, 2001, then States would have to comply with all new requirements by March 31, 2001 (unless the implementation of the new regulatory provision requires a contract change.) If a State needs to amend the State plan to include a new or revised description, then the State still must implement the new requirement by March 31, 2001, and must submit the State plan amendment by the end of that State fiscal year, or, if later, the end of the 90-day period.

Comment:

A commenter requested that we require State plan amendments to describe the steps the State has taken to ensure that any organizations with which it contracts using title XXI funds are in full compliance. In some cases, the commenter noted, it is possible that a State will be unable to comply with

aspects of the final rule until it completes a contract cycle or convenes a legislative session. In such cases, the commenter recommended that a State could be given the opportunity to negotiate an alternative time frame with HCFA for implementation of selected aspects of the final rule.

Response:

We do not agree with the suggestion that we require States to describe in their State plans how they have assured compliance of its contractors with title XXI. The State has the responsibility under section 2106(d)(1) of the Act for ensuring that the State, including its contractors, fulfills the obligations of title XXI. If we find through monitoring that services are being provided in a manner that is substantially noncompliant with applicable Federal law, regulations and the approved State plan, then we may take compliance actions in accordance with subpart B of part 457 (promulgated at 65 FR 33616, May 24, 2000).

Comment:

One State indicated that modifications to its State plan to reflect changes in Federal law would be “counterproductive” because substantial changes to the ongoing program to come into compliance with new regulations could lead to coverage delays for some children. This same State also recommended that any new regulations or policy interpretations that would restrict or substantially alter a State's SCHIP should apply only prospectively, that States should not have to amend their approved State plans retroactively, and that “agreements that were previously approved should not be changed unless HCFA could prove that a beneficiary would be substantially harmed in the absence of such a change.” If HCFA requires States to make changes retroactively, this State recommended that HCFA should provide additional funds to help States finance the costs of the changes and that these funds should not be deducted from the States' title XXI allotments.

Response:

We are requiring that States comply with this final rule on a prospective basis. States will not need to comply with new requirements retroactively. As previously set forth, this regulation will take effect 90 days after the publication date, although, if contract changes are necessary to comply with a particular requirement States will not be considered out of compliance if they do not comply with that requirement until the beginning of the next contract cycle, as described above. Pre-existing Federal requirements that have been incorporated into this regulation are already effective. States that are not complying with these pre-existing requirements could be subject to an enforcement action.

Comment:

Several commenters asserted that proposed § 457.60(a)(2) requiring a State plan amendment to reflect “[c]hanges in State law, organization, policy or operation of the program” was too expansive and exceedingly burdensome. One commenter suggested that operational changes that do not affect eligibility or benefits not be treated as changes that require State plan amendments. Another commenter recommended that we require a State plan amendment only for a change that eliminates, restricts, or otherwise modifies eligibility, even if the change impacts only a small number of enrollees.

Some commenters recommended that the State plan amendments should be required for any changes in the following areas: (1) Eligibility, including crowd-out policies; (2) benefits, including type, scope, and duration; (3) cost sharing; (4) data reporting; (5) screen and enroll procedures under §§ 457.350 and 457.360; (6) procedures for rationing access to enrollment; (7) disenrollment for failure to pay cost sharing or for cause; and (8) substantial changes in outreach and enrollment policies.

Response:

We agree that the proposed requirement set forth at proposed § 457.60(a)(2), (now § 457.60(b)), was administratively burdensome. Our intention was better reflected in the preamble to the proposed rule, although this, too (particularly our use of the phrase “substantial and noticeable”) merited further clarification. We had specifically requested comments on this issue in the preamble to the proposed regulation.

In light of these comments, we have revised § 457.60 to be more precise about when amendments must be submitted. We have revised proposed § 457.60(a)(1), now § 457.60(a), to generally require a State to amend its State plan whenever necessary to reflect changes in Federal law, regulations, policy interpretation, or court decisions, that affect provisions in the approved State plan. This element of the final rule assures that a State keeps its State plan up-to-date; this is particularly important to assure ongoing public involvement in program implementation. We have revised proposed § 457.60(a)(2), now § 457.60(b), to require a State to amend its State plan whenever necessary to reflect changes in State law, organization, policy or operation of the program that affect key program elements. Thus, amendments are required when there are changes in eligibility, including but not limited to enrollment caps and disenrollment policies; procedures to prevent substitution of private coverage, including exemptions or exceptions to required periods of uninsurance; the type of health benefits coverage offered; addition or deletion of benefits offered under the plan; basic delivery system approach; cost sharing; screen and enroll procedures, and other Medicaid coordination procedures; and other comparable required program elements. We may issue guidance to further interpret “other comparable required program elements” as the program evolves and experience demonstrates that there are other changes that should require an amendment.

We do not agree that required State plan amendments should be limited only to those that eliminate or restrict eligibility or benefits. We also have not required a State plan amendment for changes in data reporting, as suggested by the commenters, because for approval of a State plan, a State is only required to provide an assurance that it will provide data as required by HCFA and that data may change over time. Finally, we have not required a State plan amendment for substantial changes in outreach strategies, as suggested by the commenters, because we believe that a State needs to have flexibility to adapt its outreach strategies as frequently as it finds necessary to best reach potentially eligible children without having to submit a State plan amendment in order to do so.

Comment:

Several commenters praised HCFA for noting in the preamble its intent only to require an amendment for substantial and noticeable program changes and hoped this flexibility would be reflected in the final rule.

Several commenters noted that “substantial and noticeable” changes can be interpreted in a variety of ways, depending upon whom the change affects. One commenter noted that a change that affects the eligibility of 300 families across the State, 25 families in one community, or a particular group such as immigrant families, will be substantial and noticeable to the affected families, but likely to be inconsequential and unnoticed by the rest of the State or the community. Another commenter recommend that the “substantial change” language be added to the regulation text, as opposed to only being mentioned in the preamble, given that courts and other agencies cannot rely on language contained only in the preamble.

Response:

We appreciate the commenters' support for our general

intent to require amendments only for significant and noticeable program changes. As discussed above, we agree that the discussion of this issue in the preamble to the proposed rule was not clear and did not provide sufficient guidance to States. Further, we agree that the policy should be included in the regulation text to ensure proper implementation. Therefore, we have revised § 457.60(a) (now § 457.60(b)) to clarify when a State plan amendment will be required, by identifying the categories of changes that, by their nature, have a significant effect. State plan amendments will be required for all program changes that fall into these categories.

Comment:

One commenter believes that HCFA should not require either State plan amendments or public input for small program changes.

Response:

As noted in previous responses, we have revised proposed § 457.60(a)(2), now § 457.60(b), to specify those changes that require a State plan amendment; the rules assure the plan will be revised to reflect significant program changes. We require States to provide assurances that it permits ongoing public involvement once the program has been implemented, and we require certification of public notice for State plan amendments relating to eligibility and benefit restrictions pursuant to § 2106(a)(3)(B) of the Act (see § 457.65(b)(1).) We are not, however, requiring that a State routinely certify that it has obtained public input prior to submitting a plan amendment to HCFA. We encourage States to obtain meaningful public input prior to submission of a State plan amendment and believe that public involvement prior to the implementation of a program change would constitute an important part of the ongoing public involvement. Further discussion of requirements for public involvement are found in response to comments on § 457.120.

Comment:

One commenter suggested that proposed § 457.60(a)(3) (now § 457.60(c)) and § 457.65(d)(2) (the section containing more detail on State plan amendments regarding changes in certain sources of funding) be combined for organizational purposes. Another commenter recommended that HCFA delete the requirement that a State submit a State plan amendment when the source of the State share of the SCHIP funding changes because the source of State funding is “irrelevant.” Another commenter recommended that HCFA should consider another mechanism for ensuring that States do not use prohibited revenue sources such as impermissible provider taxes or donations. One commenter noted that this requirement will deter States from modifying their plans in order to better provide health services to children in need.

One commenter asserted that a certification by the State should be sufficient to assure that the State is not using impermissible taxes. Another commenter suggested that federal concerns would be better addressed by an effort to educate States as to the statutory limitations on such taxes.

Response:

We agree that combining proposed § 457.60(a)(3) and § 457.65(d)(2) makes organizational sense because both relate to changes in the source of a State share of funding. Therefore, we have deleted proposed § 457.65(d)(2) and revised proposed § 457.60(a)(3), now § 457.60(c), to include the substance of § 457.65(d)(2). Section § 457.60(c) now requires a State to amend its State plan whenever necessary to reflect changes in the source of the State share of funding, except for changes in the type of non-health care related revenues used to generate general revenue.

However, we disagree with the commenter's recommendation to delete proposed § 457.60(a)(3), now § 457.60(c). The source of State funding is relevant because Section 2107(d) of the Act requires a State plan to include a description of the budget for the plan and include details on the sources of the non-Federal share of plan expenditures, as necessary. In addition, section 2107(e)(1)(C) of the Act provides that section 1903(w) of the Act (relating to limitations on provider taxes and donations) applies to States in the same manner under title XXI as it applies under title XIX. Because section 1903(w) of the Act prohibits States from collecting impermissible provider taxes and donations, and because the title XXI statute requires States to identify, in detail, sources of the States' share of expenditures, it is appropriate to evaluate the permissibility of the non-Federal funding sources involving health care-related taxes and/or donations prior to approval of a State plan and whenever the State changes its source of State funds. The method of evaluating the permissibility of State funding sources involving health care-related taxes and/or donations, as set forth at proposed § 457.60(a)(3), now § 457.60(c), is the most efficient mechanism to ensure protection to beneficiaries, Federal taxpayers, and States. However, it should be noted that if a State makes a programmatic change as a result of a change in the amount of the source of the State share, then it is required to submit a State plan amendment in accordance with § 457.60(b).

We believe it is our obligation to ensure the implementation of the congressional intent that States not use impermissible sources of funding for child health programs, as impermissible State funding would place a State's entire program at risk. Furthermore, it appears that Congress sought to avoid the process used in Medicaid of assessing penalties that may accumulate over a long period of time and the disruption in program operation that such penalties can create. By requiring a State to submit a State plan amendment for review, we have an opportunity to prevent the States' use of impermissible funding and any consequential disruption of the program. In the long run, the process better protects States' and the federal government's interest in assuring continuity and ongoing coverage of children.

Comment:

A few commenters expressed their concern that the requirement at proposed § 457.60(b) for amended three-year budgets when States modify approved budgets creates a significant burden for both the States and HCFA. A State expressed the opinion that this requirement is particularly burdensome if applied to insignificant modifications to the approved budget.

Two commenters suggested that a three-year budget is difficult because “State budget processes and legislatures do not always coincide with program decisions.” Another commenter similarly noted that a three-year budget is longer than a State agency can reasonably determine at the time program decisions are made because the State portion of the budget is determined annually by the State legislature. An additional commenter stated that the requirement at proposed § 457.60(b) works against the budgetary processes currently in place at the State level, and that budgets are developed for two years into the future at most.

Several commenters argued that three year budget estimates will not be accurate, citing reasons such as the uncertainty caused by tremendous enrollment growth, changing populations, variations in State revenues, and unstable medical expenditures. Two States commented that three year budget estimates would not provide the level of information necessary to assure financial ability to support the program change, and would be of limited use because they would not reflect either actual expenditures or actual enrollment. These States thus

asserted that the stated rationale in the preamble, that such a projection would be useful to show if States plan to spend their money in the succeeding two years, will not apply.

One State asserted that there is no reason to look to Medicaid waiver processes for a model for SCHIP budget requirements, since the waiver process requires a demonstration of budget neutrality that is not necessary in SCHIP. This State argued that the model should be the title XIX State plan amendment process.

Some States suggested alternatives for the proposed requirement for three-year budgets with State plan amendments, such as an assurance of available funding; a three year budget with the annual report but not each State plan amendment; or a one-year budget rather than a three-year budget. Several commenters suggested that an amended three year budget should be required only when a State plan amendment would make a significant modification to the previously approved budget, such as a major change in the benefit package, eligibility rules, or cost-sharing.

Response:

We agree with the commenters' concerns that the requirement for a three-year budget with a State plan amendment at proposed 457.60(b) creates an unnecessary burden for the States. Section 2107(d) requires that the State's description of the budget for its State plan be updated periodically as necessary. Because we otherwise require that the budget be updated periodically through the annual reports and through quarterly financial reporting, we have revised the requirement at proposed § 457.60(b), now § 457.60(d), to require that only a one-year budget be submitted with a plan amendment that has a significant impact on the approved budget. An amendment would have impact on the approved budget if it changes program elements related to eligibility, as required by § 457.60(b)(1) or cost sharing, as required by § 457.60(b)(6). We have also revised § 457.750 to reflect this change.

Section 457.140, will continue to require that the State submit a three-year budget with their annual report that describes the State's planned expenditures. Because States have up to three years to spend each annual allotment, a three-year budget is useful to show if States project that they will use their unused allotments in the succeeding two fiscal years. We realize that a State must base the required information on projections and that the budget projections submitted to HCFA are not approved by a State's legislature. We also recognize that projections of expenditures for a three-year period may vary from actual expenditures for a variety of reasons. Because SCHIP is a new program, States did not have experience at the beginning of the implementation of their programs to accurately predict enrollment of children or costs associated with providing services. However, we expect that as States gain experience in operation of their programs and as the State program rules stabilize over time, the three-year projections will become more accurate. A three-year budget helps the State plan program expenditures and helps HCFA to analyze spending and develop a responsive reallocation formula within the parameters of the statute.

The preamble for § 457.140 included a discussion of the budget projections required in other programs. We would like to clarify that this discussion was not intended to serve as a rationale for the requirement for a three-year projection of expenditures in the SCHIP program. This discussion was intended to demonstrate that we took the budgetary requirements of other programs into consideration as we determined our budget requirements for SCHIP.

8. Duration of State Plans and Plan Amendments (§ 457.65)

In § 457.65, we proposed that the State may choose any effective date for its State plan or plan amendment that is not earlier than October 1, 1997.

We noted in the preamble that a State may implement a State plan prior to approval of the plan but that any State that implements an unapproved State plan risks the possibility that the plan will not be approved as implemented. If a State implements a State plan prior to approval and it is approved, we also indicated in the preamble our interpretation that the State can receive Federal matching funds on a retroactive basis for expenses incurred (other than expenses incurred earlier than October 1, 1997) for the programs if the State operated in compliance with the approved State plan and all applicable statutory and regulatory requirements. In the event that the State plan is not approved, the Federal government would not match the State's prior expenditures for implementation of the State plan.

In the preamble to the proposed rule, we noted the risks involved in implementing a change in the State program without receiving prior approval of that change through a State plan amendment. If a State makes a change and the State plan amendment reflecting the change is later disapproved, the State may either risk its Federal matching or face a compliance action. The State cannot receive Federal matching for expenditures on a program change that is disapproved through the State plan amendment process if these expenditures can be segregated from expenditures on the approved State plan. The State would be subject to the compliance remedies described in section 2106(d) of the Act, as implemented in the final financial regulation (65 FR 33616), May 24, 2000, if the expenditures on such a program cannot be segregated from expenditures on the approved State plan. A compliance action is appropriate because the continued operation of the unapproved program change constitutes a failure to conduct the State program in accordance with the approved State plan.

Section 2106(b)(3)(C) of the Act provides that any State plan amendment that does not eliminate or restrict eligibility or benefits can remain in effect only until the end of the State fiscal year in which it becomes effective (or, if later, the end of the 90-day period in which it becomes effective) unless the State plan amendment is submitted to HCFA before the end of the period. We proposed to implement this provision at § 457.65(a)(2). Thus, if a State program change is implemented and the corresponding amendments are not submitted within the required time frame, the State risks being found out of compliance with its State plan and therefore, risks loss of Federal financial participation in expenditures beyond the scope of the approved State plan or other financial sanctions, as discussed in the final financial regulation (65 FR 33616), May 24, 2000.

Section 2106(d)(2) of the Act requires that the Secretary provide a State with a reasonable opportunity for correction before taking financial sanctions against the State on the basis of an enforcement action. Thus, we proposed to clarify certain provisions set forth in HCFA 2114-F (65 FR 33616, May 24, 2000). Specifically, paragraph (d)(2) of § 457.204, “Withholding of payment for failure to comply with Federal requirements,” discussed the opportunity for correction prior to a financial sanction for failure to comply with a Federal requirement. As proposed, § 457.204(d)(2) provided that if enforcement actions are proposed, the State must submit evidence of corrective action related to the findings of noncompliance to the Administrator within 30 days from the date of the preliminary notification. In the SCHIP

programmatic regulation, we proposed to revise § 457.204(d)(2) to address in more detail the possible scope of corrective action that could be required. We proposed that corrective action is action to ensure that the plan is and will be administered consistent with applicable law and regulations, to ameliorate past deficiencies in plan administration, and to ensure equitable treatment of beneficiaries.

In accordance with section 2106(b)(3)(B)(ii) of the Act, at § 457.65(b), we proposed that an amendment that eliminates or restricts eligibility or benefits under the plan may not be effective for longer than a 60-day period unless the amendment is submitted to HCFA before the end of that 60-day period. We further proposed, in accordance with section 2106(b)(3)(B)(i), that amendments that eliminate or restrict eligibility or benefits under the plan may not take effect unless the State certifies that it has provided prior public notice of the proposed change in a form and manner provided under applicable State law. The notice must be published prior to the requested effective date of change.

At § 457.65(c) we proposed that a State plan or plan amendment that implements cost-sharing charges, increases the existing cost-sharing charges or increases the cumulative cost-sharing maximum permitted under proposed § 457.560 is considered an amendment that restrict benefits and must meet the requirements of § 457.65(b).

At § 457.65(d), we proposed that a State plan amendment that requests approval of changes in the source of the State share of funding must be submitted prior to such change taking effect. With regard to source of funding, we stated that if a State has indicated that general revenues are the source of funding, then we would require a plan amendment for changes in the State's tax structure that reflect or include a change to general revenues based on health care related revenues used to finance the State's share of title XXI expenditures. We would not require a plan amendment to reflect changes in the type of non-health care related revenues used to generate general revenue.

In accordance with section 2106(e) of the Act, at § 457.65(e), we proposed that an approved State plan continues in effect unless the State modifies its plan by obtaining approval of an amendment to the State plan or until the Secretary finds substantial non-compliance of the plan with the requirements of the statute and regulations. An example of substantial non-compliance would be the imposition of cost-sharing charges that exceed Federal limits.

Comment:

A few commenters expressed concern about the time frames for submission of State plan amendments. A commenter suggested that HCFA follow guidelines similar to Medicaid guidelines that allow a State to submit a plan amendment that is statutorily allowable in the quarter after the State's implementation of the change. Another commenter proposed that the time frames for submitting an amendment be the same regardless of whether the State plan amendment limits or restricts eligibility or benefits. In the view of this commenter, States are likely to make errors if the time frames are different.

Response:

Section 2106(b)(3) of the Act provides specific time frames for submission of State plan amendments. A State plan amendment that does not eliminate or restrict eligibility or benefits can remain in effect until the end of the State fiscal year in which it becomes effective (or, if later, the end of the 90-day period in which it becomes effective) unless the State plan amendment is submitted to HCFA before the end of that State fiscal year or the 90-day period. This time frame is more liberal than the time frame under the Medicaid guidelines, which only permit a title XIX amendment to be effective from the first day of the quarter in which the amendment is submitted. Furthermore, under the statute, an amendment that eliminates or restricts eligibility or benefits under the plan may not be effective for longer than a 60-day period unless the amendment is submitted to HCFA before the end of that 60-day period. While we note the potential for confusion caused by two different time frames, section 2106(b)(3) of the Act explicitly provides for different time frames for different types of amendments and does not provide authority for a different process. States are encouraged to discuss planned amendments with HCFA to assure they are submitted in a timely manner.

Comment:

One commenter appreciated HCFA's support for State flexibility in how to provide public notice of State plan amendments. Other commenters applauded HCFA's decision to treat State plan amendments that increase cost sharing as amendments that restrict “eligibility or benefits.”

Response:

We note the commenters' support.

Comment:

One commenter requested that HCFA clarify whether it intends to require public notice when a family will experience an increase in its premium share because the subsidy rate is being applied to a premium that resulted from an insurance carrier rate increase. In this commenter's view, public notice is unnecessary in this situation because the State is not initiating the private sector rate increases. The State could continue to assure that the family's total cost sharing remains within Federal limits.

Response:

A change in cost sharing that increases the amount of premium share owed by the enrollee, must be reflected in a State plan amendment that meets the requirements set forth in § 457.65(c). However, an increase in premium share that does not affect the enrollee's cost-sharing charges or that does not bring the cost sharing charges above the level reflected in the State plan would not be subject to the public notice requirements of § 457.65(b). We recognize that § 457.65(b) could be difficult to administer in States that provide premium assistance for coverage provided through group health plans, depending how a State chooses to design its premium assistance program. However, such an increase may impact the enrollee's access to services and participation in SCHIP and, consistent with the statutory requirements for amendments eliminating or restricting benefits at 2106(b)(3)(B), the public must be given notice prior to the increase. The statute does not provide an exception for coverage provided through group health plans.

However, a State has flexibility to design a system that will meet the prior public notice requirement. For example, a State may choose to require that the family be charged a fixed dollar amount, rather than a percentage of total premium, to hold constant the amount of premium share that the family is charged. Alternatively, a State may generally keep its charges for premium assistance programs below the level of cost sharing approved under the State plan to allow room for some cost-sharing increases that would not bring the charges above the level reflected in the plan. A State also may choose to establish a mechanism to be notified of increases prior to those increases taking effect so that it may provide prior public notice as required by § 457.65(b).

Comment:

A commenter asked that HCFA clarify that “cost sharing” in this context is defined in the same way as it is in § 457.560 for purposes of imposing cumulative maximums.

Response:

So that the term “cost sharing” has the same meaning throughout the final rule, we have added a provision in § 457.10 to define it to include premium charges, enrollment fees, deductibles, coinsurance, copayments, or other

similar fees that the enrollee has the responsibility for paying. However, we note that for purposes of the actuarial analysis required at § 457.431(b)(7), cost sharing includes only copayments, coinsurance and deductibles as described in the Notice of Proposed Rulemaking.

Comment:

One commenter asked HCFA to clarify that amendments that lengthen or institute eligibility waiting periods of uninsurance or narrow exceptions to such waiting periods constitute amendments that affect “eligibility or benefits.”

Response:

To clarify that instituting or changing eligibility waiting periods without health insurance, narrowing exceptions to such periods, or changing open enrollment periods in a way that would further restrict enrollment in the program are considered to be State plan amendments that restrict eligibility, we have added a new paragraph (d) to § 457.65. This new provision specifies that a State plan amendment that implements eligibility waiting periods without health insurance; increases the length of existing eligibility waiting periods without health insurance; or institutes or expands the use of waiting lists, enrollment caps or closed enrollment periods is considered an amendment that restricts eligibility and must meet the public notice requirements set forth in this section. Eligibility waiting periods without health insurance and limited open enrollment periods are restrictions in eligibility because these enrollment procedures directly limit an enrollee's access to the program. We further clarified in § 457.305 that in the State plan, the State must include a description of the State's policies governing enrollment and disenrollment, including enrollment caps, process(es) for instituting waiting lists, deciding which children will be given priority for enrollment, and informing individuals of their status on a waiting list, if applicable to that State.

Comment:

Many commenters expressed concern about whether the provision at § 457.65(b)(1) requiring States only to certify that they have provided public notice of such plan amendments “in a form and manner provided under applicable State law” provides meaningful public input into proposed State plan amendments. These commenters questioned whether “notice” provides the opportunity to comment on and discuss a proposal, and point out that the form of notice could prove largely meaningless, depending on a State's particular laws. Several commenters recommend that the final rule require States to certify that they have provided prior public notice and a meaningful opportunity for the public to submit comments on any proposed State plan amendments that affect eligibility or benefits. States have found such input to be helpful to identify ways in which the program can be improved and maintain strong support for the program. An additional commenter believed that State plan amendments to make changes in benefits require public notice and comment.

Response:

We encourage States to obtain meaningful public input prior to submission of a State plan amendment that eliminates or restricts eligibility or benefits. Furthermore, we require, in § 457.120, that States involve the public once the program has been implemented. However, section 2106(b)(3)(B) of the Act specifically permits a State to certify that it has provided public notice of the change in a form and manner provided under applicable State law, and we believe the requirements under § 457.65 are consistent with the flexibility provided by this statutory provision.

Comment:

One commenter requested that we clarify § 457.65(b)(1) to confirm that States must certify that they have complied with applicable State administrative procedure law or similar requirements mandating public notice and comment with respect to the promulgation of rules or regulations of general applicability. This commenter also requested modification of the provision to clarify that the State must certify that it has complied with all applicable State legal requirements for notice

and

a meaningful opportunity for public comment. Although State processes vary, this commenter indicated that there is generally a requirement that notice be issued for a specified period of time, followed by a period for public comment. This same commenter believes that § 457.65(b)(2), which requires that public notice be published before the effective date of the change, should be eliminated because it could be interpreted to allow State plan amendments that restrict or eliminate eligibility or benefits to become effective as long as the public notice was published before the requested date of the change, regardless of whether or not the State had provided meaningful opportunity for public comment or whether the applicable time frames had been met.

Response:

As noted in the previous response, § 457.65(b)(1) implements section 2106(b)(3)(B) of the Act, which specifically permits a State to certify that it has provided prior public notice of the change in a form and manner provided under applicable State law. While we encourage States to consider public input, title XXI addresses only public notice as a condition for the effective date of certain State plan amendments. Our regulation is not intended to restrict notice and comment opportunities available under State law. We note that States must also comply with the requirements of § 457.120 regarding public involvement.

Comment:

One commenter suggested that proposed and submitted State plan amendments be posted on the HCFA and State web sites. The commenter noted appreciation for the effort that HCFA has made to date to post information about the filing of State plan amendments on its web site and encourages the agency to modify the preamble to clarify that State plan amendments (along with State plans) will continue to be made available to the public through the HCFA web site. According to this commenter, the preamble should indicate that HCFA will post the actual plan amendments that are pending whenever possible and that, should this not be possible, the agency will list the name and phone number of a State official who can provide a copy of the pending State plan amendment.

Response:

We will continue to make an effort, as resources permit, to make the approved State plan and any approved State plan amendments available to the public on the web site. However, we do not post pending State plan amendments on the web site because amendments are often altered during the approval process, and this may cause confusion to the public, although we will consider identifying on the HCFA web site whether a State has a pending plan amendment under review. The position title of the State official responsible for program administration may be found in the approved State plan. Also posted on the HCFA web site is a list of HCFA contacts for each State's SCHIP program.

Comment:

Over a dozen commenters opposed the proposed provision at § 457.65(d) to require prior approval of a plan amendment regarding a States' share of program funds and requested that this requirement be withdrawn. According to these commenters, section 2106 of the Act contemplates a process under which States can specify the effective date of their plans or amendments and, if a plan is approved, a State can receive matching funds on a retroactive basis. In these commenters' view, the statute sets forth straightforward limits on a State's flexibility to specify effective dates, but those limits do not contemplate prior

approval of an amendment. The commenters asserted that the statutory scheme provides adequate remedies for the Secretary if the plan or plan amendment is subsequently disapproved.

Response:

We believe the commenters' concerns may be based in a misunderstanding of the process. The requirement at proposed § 457.65(d) does not prevent States from implementing a new source of funding prior to receiving State plan or plan amendment approval. It requires that an amendment be submitted before the change can be implemented, but the amendment does not need to be approved in order for a State to receive matching funds for expenditures relating to the change. A State can submit its amendment on January 1, begin using the new source of funding on February 1, and receive matching funds retroactive to February 1 if the amendment is approved on or after that date.

The requirement at § 457.65(e) ensures that the time period during which a State may operate a program using impermissible funds is limited to the time during which the amendment is under review. HCFA can only approve a State plan amendment to the extent that the source of funding is considered permissible. Thus, while a State may implement a new source of funds prior to receiving State plan approval, the Federal matching funds are at risk until a determination of permissibility has been made. To the extent that source is determined to be impermissible, the State plan amendment would be disapproved and the State would realize the penalty against its SCHIP expenditures in accordance with the statutory penalty provisions. We expect that the required process will protect States from proceeding too far using impermissible State funds, and from thereby placing these programs and enrollee coverage at risk. Furthermore, a State is not required to submit a State plan amendment for changes in the source of general revenues used to fund SCHIP, as long as those changes are not affected by health care-related taxes or donations. For further rationale on our policy requiring amendments on changes in the source of State funding, please see earlier comments on § 457.60.

Comment:

Several commenters asserted that the proposed § 457.65(d) intruded on State budgeting and financial prerogatives, was contrary to practices in other federal-state matching programs, and could not have been intended by Congress. One commenter did not understand why the Federal government wants prior approval of increases in State commitments under title XXI when Congress has provided States with firm allotments for at least five years. Several commenters noted that it may not be possible for the State to submit a State plan amendment to HCFA before the effective date of any change in the source of the State share of funding becomes effective because of the legislative budgeting cycle, which sometimes includes supplemental funding for incurred expenditures or legislation with a retroactive effective date to take advantage of previously unavailable funds.

Response:

It is important to note that § 457.65(d) does not require prior approval of new State funding sources. We recognize that § 457.65(d) may reduce State flexibility, we must also consider the statutory penalties for the use of impermissible provider taxes and donations as specified in section 2107(e) and the public interest in assuring that States do not find themselves in a situation where they have been operating with impermissible funding sources for an extended period of time. Congress specifically imposed penalties for the use of impermissible funds and the process established by these rules protect States and SCHIP programs from the risk of a significant penalty that could make it difficult for the State to continue to operate its program for children. In light of the effective statutory prohibition on the use of these funding mechanisms, we do not believe we are unduly intruding on the States budget process through this requirement, as we are not questioning State legislative appropriations that are not derived from health care-related taxes or donations. A State is not required to submit a State plan amendment for changes in the sources of general revenue used to fund SCHIP, when those changes are not affected by health care-related taxes and donations. By reviewing the State source of funding, we have the opportunity to prevent the kind of disruption to ongoing program operations that could occur if a State was found to have used an impermissible source of funding for an extended period of time.

Comment:

One State expressed its view that the proposed requirement of prior approval for SCHIP funding changes is not feasible given the State's commitment to developing a public/private partnership with private donors. The State indicated that it waited almost a year for approval from HCFA to be able to accept a contribution from a private foundation. This State asserted that this requirement would hinder the State's ability to accept contributions from private sources.

Response:

States are not required to obtain approval of the State plan amendment prior to a change taking effect. Thus, we do not believe that the process will hinder States' ability to accept contributions from private sources. States are required by § 457.65(e) to submit a State plan amendment prior to a change in State source of funding taking effect. While any delay in approving the amendment would not affect a State's ability to rely on such funds, at its own risk pending review, we agree that HCFA should act in an expeditious manner to review these amendments. The statutory requirements governing contributions received by States are very restrictive and we have the responsibility to ensure that contributions received by States from private sources comply with these statutory requirements. Federal regulations require that we evaluate contributions received by States on a case-by-case basis. States must submit necessary documentation to us in accordance with the Federal regulations so that we may evaluate the permissibility of a contribution. That documentation is related to the nature of the contributor's business and financial characteristics, including the source of its annual revenues. We will make our best effort to determine the permissibility of a contribution promptly once a State has provided the information that we need to make a determination.

Comment:

One commenter requested clarification of the exemption at § 457.65(d)(2) to the general requirement for the submission of State plan amendments relating to changes in the source of State funding for “non-health care related revenues.” The commenter stated that clarification is necessary to ensure that, for example, income tax receipts from medical professionals are not considered “health care related revenues.”

Response:

Taxes of general applicability are not considered “health care-related” for purposes of section 1903(w) of the Social Security Act, and the term has the same meaning under § 457.60(a)(3). (As noted earlier, § 457.65(d)(2) has been combined with 457.60(a)(3) for better organization of the regulation.) However, section 1903(w)(3)(A) of the Act and the Federal regulations implementing it at 42 CFR 433.55 specify that a tax will be considered to be health care-related if at least 85 percent of the burden of the tax falls on health care providers. These provisions further state that a tax is considered to be health care-related if

the tax is not limited to health care items or services, but the tax treatment of individuals or entities providing or paying for those health care items or services is different than the treatment provided to other individuals or entities.

Comment:

One commenter suggested adding a new provision to proposed § 457.65(e), now § 457.65(f), to clarify that a State could discontinue its program by withdrawing its State plan.

Response:

As set forth in § 457.170, a State may request withdrawal of an approved State plan by submitting a State plan amendment to HCFA as required by § 457.60. We note in § 457.170 that because withdrawal of a State plan is a restriction of eligibility, a State plan amendment to request withdrawal of an approved State plan must be submitted in accordance with requirements set forth in § 457.65(b), including those related to the provision of prior public notice. We have not added a new provision to proposed § 457.65 because we do not find it necessary to repeat this State option elsewhere in the regulation text.

9. Program Options (§ 457.70)

Under section 2101(a) of the Act, a State may obtain health benefits coverage for uninsured, low-income children in one of three ways: (1) a State may provide coverage by expanding its Medicaid program; (2) a State may develop a plan providing coverage that meets the requirements of section 2103 of the Act; or (3) a State may provide coverage through a combination of a Medicaid expansion program and a separate child health program. We set forth the program options at proposed § 457.70(a).

At § 457.70(b), we proposed that a State plan must include a description of the State's chosen program option.

At § 457.70(c)(1), we proposed that the following subparts apply to States that elect Medicaid expansions:

• Subpart A.

• Subpart B (if the State claims administrative costs under title XXI).

• Subpart C (with respect to the definition of a targeted low-income child only).

• Subpart F (with respect to determination of the allotment for purposes of the enhanced matching rate, determination of the enhanced matching rate, and payment of any claims for administrative costs under title XXI of the Act only).

• Subpart G.

• Subpart H (if the State elects the eligibility group for optional targeted low-income children and elects to operate a premium assistance program).

• Subpart J (if the State claims administrative costs under title XXI and seeks a waiver of limitations on such claims based on a community based health delivery system).

We proposed that subparts D, E, and I of part 457 do not apply to Medicaid expansion programs because Medicaid rules govern benefits, cost sharing, program integrity and other provisions included in those subparts. We note that the provisions of subparts B and F were set forth in the May 24, 2000 final rule (HCFA 2114-F, 65 FR 33616).

In addition, at proposed § 457.70(c)(2), we specified that States choosing a Medicaid expansion program must submit an approvable amendment to the State's Medicaid State plan, as appropriate.

At § 457.70(d), we proposed that a State that chooses to implement a separate child health program must comply with all the requirements in part 457.

At 457.70(e), we proposed that a State that elects to obtain health benefits coverage through both a separate child health program and a Medicaid expansion program must meet the requirements of (c) and (d) of this section.

Comment:

While the statute specifies that States have the option of implementing their SCHIP programs as Medicaid expansions, State-only programs, or a combination of the two, a commenter contended that the regulations favor States that have elected to use title XXI to expand their Medicaid programs by imposing greater administrative burdens on separate child health programs.

Response:

We do not agree that the regulations favor States that choose the Medicaid expansion option. Certain provisions in part 457 do not apply to Medicaid expansion programs because Medicaid rules govern those aspects of program operations. Furthermore, we do not believe that we have imposed greater administr

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