42 CFR Parts 435 and 436

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 435 and 436

[MB-001-F]

RIN 0938-AA58

Medicaid Program; Eligibility and Coverage Requirements

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Final rule.

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SUMMARY: This final rule withdraws regulations setting forth a

mandatory budgetary method for determining financial eligibility for

individuals who are not receiving or deemed to be receiving Federal

cash assistance but whose financial eligibility for Medicaid is being

determined through the application of financial criteria of the Aid to

Families with Dependent Children (AFDC) program. These regulations were

previously issued as part of a final rule with comment period

originally published on January 19, 1993, and were to be effective

October 18, 1994.

This final rule also makes conforming technical changes, as a

result of this withdrawal, to the remainder of the January 19, 1993,

final rule and reaffirms the August 18, 1994, effective date of this

remaining part.

These changes are being made as a result of consideration of public

comments received.

EFFECTIVE DATE: August 18, 1994.

FOR FURTHER INFORMATION CONTACT: Marinos Svolos, (410) 966-4451.

SUPPLEMENTARY INFORMATION:

I. Background

On January 19, 1993 (58 FR 4931), we published in the Federal

Register a final rule with comment period that amended the requirements

for coverage of certain groups of individuals under Medicaid and the

requirements for determining Medicaid eligibility. Because the new

administration wanted to fully review the policies in these

regulations, on February 19, 1993, we published a notice in the Federal

Register (58 FR 9120) delaying the effective dates and compliance dates

of the final rule with comment period for 6 months. These dates were

extended for two additional 6-month periods in subsequent notices

published in the Federal Register on August 23, 1993 (58 FR 44457) and

February 18, 1994 (59 FR 8138).

These regulations incorporated into the Medicaid regulations

substantive changes made in the composition of eligibility groups of

individuals and in the criteria used to determine their financial

eligibility under Medicaid. The substantive changes were initially made

by the Omnibus Budget Reconciliation Act of 1981 (OBRA '81), Public Law

97-35, and the Tax Equity and Fiscal Responsibility Act of 1982

(TEFRA), Public Law 97-248, and further amended by the Deficit

Reduction Act of 1984 (DRA), Public Law 98-369; the Consolidated

Omnibus Budget Reconciliation Act of 1985 (COBRA), Public Law 99-272;

the Omnibus Budget Reconciliation Act of 1986 (OBRA '86), Public Law

99-509; the Medicare and Medicaid Patient and Program Protection Act of

1987, Public Law 100-93; the Omnibus Budget Reconciliation Act of 1987

(OBRA '87), Public Law 100-203; the Medicare Catastrophic Coverage Act

of 1988 (MCCA), Public Law 100-360; the Family Support Act of 1988,

Public Law 100-485; the Omnibus Budget Reconciliation Act of 1989 (OBRA

'89), Public Law 101-239; and the Omnibus Budget Reconciliation Act of

1990 (OBRA '90), Public Law 101-508. In addition, the document

contained changes made as a result of administrative decisions to

improve program administration and efficiency.

Basically, the January 1993 rule had two parts with different

effective dates. The first part codified a number of statutory changes

dating as far back as 1981. This part was classified as a final rule.

As extended by the subsequent notices to the January 1993 publication,

the effective date for these regulations is August 18, 1994.

The second part of the January 1993 rule set forth a mandated

budgeting method for determining the financial eligibility of

individuals who are not receiving or deemed to be receiving Federal

cash assistance but whose financial eligibility for Medicaid is being

determined through application of the financial criteria under the Aid

to Families with Dependent Children (AFDC) program (referred to as

``AFDC-related non-cash assistance individuals''). This part was

classified as a final rule with comment period. As extended by the

subsequent notices to the January 1993 rule, the effective date for

this part is October 18, 1994.

The budgetary method set forth in the regulations was developed to

clarify contradictory provisions in the Social Security Act (the Act)

that had resulted in litigation. Basically, title XIX of the Act

(section 1902(a)(10)) requires that the methods of the Federal cash

assistance program most closely related to the individual's status be

used to determine income and resources for purposes of Medicaid

eligibility. At the same time, title XIX (section 1902(a)(17)(D))

prohibits use of some of those same methods without specifying what

should be used in their place. That is, section 1902(a)(17)(D) of the

Act prohibits the consideration of income and resources of family

members as available to applicants and recipients (unless actually made

available) except (1) an applicant or recipient for his or her

respective spouse; and (2) parents for their children who are either

under 21 or who are blind and disabled regardless of age. This

requirement became a problem for AFDC-related non-cash assistance cases

when an AFDC statutory change in 1984 mandated that all family members

living together be considered one family unit for AFDC eligibility

purposes and that the income and resources of all family members be

pooled. As a result, AFDC sometimes requires attributing income and

resources from persons other than spouses or parents (siblings,

stepparents, grandparents, legal guardians, and alien sponsors) as

available to the applicant or recipient. Use of the AFDC methods for

cases involving income from persons other than spouses or parents,

however, is contrary to section 1902(a)(17)(D) of the Act.

Since 1984, courts in a number of jurisdictions have ruled that

section 1902(a)(17)(D) of the Act, which limits whose income and

resources can be counted (unless actually made available), overrides

section 1902(a)(10) of the Act, which requires that the AFDC methods be

used to determine Medicaid eligibility for AFDC-related non-cash

assistance cases. These rulings left open the issue of what method

should be used uniformly among States. Currently, States are using a

variety of methods for determining income for Medicaid eligibility

purposes.

In response to our request for public comments on the January 1993

rule, we received many objections to the budgeting method set forth in

the regulations. Specifically, we set forth in the January 1993 rule a

prorating method of determining eligibility for AFDC-related non-cash

assistance individuals. Under this method, individual members of the

Medicaid budgetary unit would have their income and resource

eligibility determined using separate standards that are calculated

based on proration of existing standards. Parents' countable income and

resources would be prorated equally among their dependents living in

the home, including non-Supplemental Security Income dependents who may

not be members of the budgetary unit. The proration would also take

into account the needs of the parents. We also addressed how certain

types of income would be counted and how certain types of disregards

would be calculated.

We received comments from 13 States and 7 special interest groups.

With one exception, all of the commenters objected to the budgeting

method in these regulations. These commenters stated that the new

procedure was error prone and unnecessarily complex. In addition, they

believed that the required system and manual changes and personnel

retraining would result in significant administrative costs.

We considered these comments, especially in the light of health

care reform legislation. We also worked with the Medicaid Eligibility

Technical Advisory Group (ETAG) to develop an acceptable policy. The

ETAG prefers a policy that minimizes the disruption of current

approaches. We also met with recipient advocates who endorse allowing

States a choice of several options, but strongly oppose allowing the

budgeting method in the referenced regulation to be one of these

options.

Consequently, we are withdrawing the regulations containing the

mandatory budgetary method for determining financial eligibility for

AFDC-related non-cash assistance individuals. By doing this, we are

allowing States flexibility, within any constraints imposed by court

orders or agreements with recipient advocate groups, to interpret the

current provisions in the law. That is, at this time, in the absence of

specific regulatory guidance on the methodologies for establishing

income and resource eligibility for AFDC-related non-cash assistance

individuals, States will be required to use methodologies that comply

with the statute and any applicable court orders.

II. Provisions of the Final Regulation

As a result of our decision to withdraw the regulations that

require States to use a mandatory budgetary method for determining

financial eligibility for AFDC-related non-cash assistance individuals,

we are making the following changes to the January 1993 rule:

We have withdrawn Secs. 435.604, 435.606, 436.604, and

436.606. These sections contained the procedures for determining income

and resource eligibility for AFDC-related non-cash assistance groups.

We have removed and reserved Sec. 435.113(b) and

Sec. 436.111(b)(2). These paragraphs required States to provide

Medicaid to individuals denied AFDC because of the involuntary

inclusion of all eligible siblings living in the home as members of

AFDC filing units.

We have removed and reserved Sec. 435.600(b) and

Sec. 436.600(b). These sections referred respectively to Sec. 435.604

and Sec. 436.604, which have been removed.

We have revised Sec. 435.601 and Sec. 436.601 by removing

paragraph (e) in each section. These paragraphs contain criteria for

exceptions to financial application eligibility methodologies and State

plan requirements that are no longer applicable. We also have corrected

related cross-references in paragraph (b) and (f)(l) of each section.

We have revised Sec. 435.602 by removing and reserving

paragraph (d) and Sec. 436.602 by removing and reserving paragraph (c).

These paragraphs contain requirements for determining financial

responsibility of relatives and other individuals for AFDC-related non-

cash assistance groups. We also have corrected related cross-references

in Secs. 435.602(a), 436.602(a), and 436.602(a)(2).

The remainder of the January 1993 rule is unchanged and is

effective on August 18, 1994.

III. Regulatory Impact Statement

We generally prepare a final regulatory flexibility analysis that

is consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612), unless the Secretary certifies that a regulation will not

have a significant economic impact on a substantial number of small

entities. For purposes of the RFA, we consider all Medicaid providers

as small entities. Individuals and States are not included in the

definition of a small entity.

In addition, section 1102(b) of the Act requires the Secretary to

prepare a regulatory impact analysis for any rule that may have a

significant impact on the operations of a substantial number of small

rural hospitals. Such an analysis must conform to the provisions of

section 604 of the RFA. For purposes of section 1102(b) of the Act, we

define a small rural hospital as a hospital with fewer than 50 beds

that is located outside a metropolitan statistical area.

This final rule revises the January 19, 1993, final rule with

comment period. We have decided to withdraw the second part of that

rule which basically codified a mandatory budgetary method for

determining financial eligibility for AFDC-related non-cash assistance

individuals. We concluded, along with a number of other entities, that

this provision would result in significant administrative costs. The

mandatory budget method has, therefore, been withdrawn.

This final rule will take effect on August 18, 1994. We believe

that the withdrawal of the referenced regulations minimizes any

unnecessary burden on the public, and that the best regulatory options

have been selected. Further, we believe that these regulations will not

lead to increased costs. Therefore, we have determined that these

provisions will have a negligible cost effect and that a regulatory

impact analysis is not required.

We have determined, and the Secretary certifies, that this final

rule will not result in a significant economic impact on a substantial

number of small entities and will not have a significant impact on the

operations of a substantial number of small rural hospitals. For these

reasons, we are not preparing analyses for either RFA or section

1102(b) of the Act.

This final rule does not contain information collection

requirements; therefore, it is not subject to Office of Management and

Budget (OMB) review under the Paperwork Reduction Act of 1980.

In accordance with the provisions of Executive Order 12866, this

final rule was reviewed by OMB.

Lists of Subjects

42 CFR Part 435

Aid to Families with Dependent Children, Grant programs--health,

Medicaid, Reporting and recordkeeping requirements, Supplemental

Security Income (SSI), Wages

42 CFR Part 436

Aid to Families with Dependent Children, Grant programs--health,

Guam, Medicaid, Puerto Rico, Supplemental Security Income (SSI), Virgin

Islands

42 CFR Chapter IV, Subchapter C is amended as follows:

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE

NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

A. Part 435, as published in the Federal Register on January 19,

1993 (58 FR 4931), and further amended to be effective on August 18,

1994 or October 18, 1994, is amended as follows:

1. The authority citation for part 435 continues to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

Sec. 435.113 [Amended]

2. Section 435.113 is amended by removing and reserving paragraph

(b).

Sec. 435.600 [Amended]

3. Section 435.600 is amended by removing and reserving paragraph

(b).

Sec. 435.601 [Amended]

4. Section 435.601 is amended as follows:

a. In paragraph (b), the phrase ``Except as specified in paragraphs

(c), (d), and (e),'' is revised to read ``Except as specified in

paragraphs (c) and (d),''.

b. Paragraph (e) is removed and reserved.

c. In paragraph (f)(1), the phrase ``except to the extent precluded

by Secs. 435.602, 435.604, and 435.606,'' is revised to read ``except

to the extent precluded in Sec. 435.602,''.

Sec. 435.602 [Amended]

5. Section 435.602 is amended as follows:

a. In paragraph (a), the phrase ``Subject to the provisions of

paragraphs (b), (c), and (d) of this section,'' is revised to read

``Subject to the provisions of paragraphs (b) and (c) of this

section,''.

b. Paragraph (d) is removed and reserved.

Sec. 435.604 [Withdrawn]

6. Section 435.604 is withdrawn and the section number is reserved.

Sec. 435.606 [Withdrawn]

7. Section 435.606 is withdrawn and the section number is reserved.

PART 436--ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS

B. Part 436, as published in the Federal Register on January 19,

1993 (58 FR 4931), and further amended to become effective on August

18, 1994 or October 18, 1994, is amended as follows:

1. The authority citation for part 436 continues to read as

follows:

Authority: Sec. 1102 of the Social Security Act (42 U.S.C.

1302).

Sec. 436.111 [Amended]

2. Section 436.111 is amended by removing and reserving paragraph

(b)(2).

Sec. 436.600 [Amended]

3. Section 436.600 is amended by removing and reserving paragraph

(b).

Sec. 436.601 [Amended]

4. Section 436.601 is amended as follows:

a. In paragraph (b), the phrase ``Except as specified in paragraphs

(c), (d) and (e) of this section,'' is revised to read ``Except as

specified in paragraphs (c) and (d) of this section,''.

b. Paragraph (e) is removed and reserved.

c. In paragraph (f)(1), the phrase ``except to the extent precluded

by Secs. 436.602, 436.604, and 436.606,'' is revised to read ``except

to the extent precluded by Sec. 436.602,''.

Sec. 436.602 [Amended]

5. Section 436.602 is amended as follows:

a. In the introductory text of paragraph (a), the phrase ``Subject

to the provisions of paragraphs (b), (c), and (d) of this section,'' is

revised to read ``Subject to the provisions of paragraphs (b) and (c)

of this section,''.

b. In paragraph (a)(2), the phrase ``, except as specified in

paragraphs (c) and (d) of this section'' at the end of the first

sentence is removed.

c. Paragraph (c) is removed and reserved.

Sec. 436.604 [Withdrawn]

6. Section 436.604 is withdrawn and the section number is reserved.

Sec. 435.606 [Withdrawn]

7. Section 436.606 is withdrawn and the section number is reserved.

(Catalog of Federal Domestic Assistance Program No. 93.778-Medical

Assistance Program)

Dated: August 11, 1994.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: August 12, 1994.

Donna E. Shalala,

Secretary.

[FR Doc. 94-20561 Filed 8-18-94; 8:45 am]

BILLING CODE: 4120-01-P