Food Stamp Program: Medical Expense Deduction

DEPARTMENT OF AGRICULTURE

Food and Consumer Service

7 CFR Parts 272 and 273

[Amendment No. 359]

RIN 0584-AB78

Food Stamp Program: Medical Expense Deduction

AGENCY: Food and Consumer Service, USDA.

ACTION: Final rule.

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SUMMARY: This rule finalizes an interim rulemaking published on October

3, 1994. The interim rulemaking amended food stamp regulations to

simplify the means by which households with elderly and disabled

members claim deductions from income for verified, prospective, non-

reimbursed medical expenses.

DATES: The amendments to Sec. 272.1(g)(138), Sec. 273.10(d)(4), and

Sec. 273.21(f)(2)(iv), Sec. 273.21(i) and Sec. 273.21(j)(3)(ii)(C) are

effective May 8, 1995 and must be implemented no later than September

5, 1995. The remaining provisions of the interim rule which are being

adopted as final without change, were effective October 1, 1994.

FOR FURTHER INFORMATION CONTACT: Eligibility and Certification

Rulemaking Section, Certification Policy Branch, Program Development

Division, Food and Consumer Service, USDA, 3101 Park Center Drive,

Alexandria, Virginia, 22302, (703) 305-2496.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be significant and was reviewed by

the Office of Management and Budget under Executive Order 12866.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551. For the reasons set forth in the final

rule in 7 CFR 3015, Subpart V and related Notice (48 FR 29115), this

Program is excluded from the scope of Executive Order 12372 which

requires intergovernmental consultation with State and local officials.

Regulatory Flexibility Act

This rule has been reviewed with regard to the requirements of the

Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Ellen Haas, the

Under Secretary for Food, Nutrition, and Consumer Services, has

certified that this interim rule will not have a significant economic

impact on a substantial number of small entities. State and local

welfare agencies will be the most affected to the extent that they

administer the Program.

Paperwork Reduction Act

This rule does not contain reporting or recordkeeping requirements

subject to approval by the Office of Management and Budget (OMB) under

the Paperwork Reduction Act of 1980 (44 U.S.C. 3507).

Executive Order 12778

This rule has been reviewed under Executive Order 12778, Civil

Justice Reform. This rule is intended to have preemptive effect with

respect to any State or local laws, regulations or policies which

conflict with its provisions or which would otherwise impede its full

implementation. This rule is not intended to have retroactive effect

unless so specified in the EFFECTIVE DATE paragraph of this preamble.

Prior to any judicial challenge to the provisions of this rule or the

application of its provisions, all applicable administrative procedures

must be exhausted. In the Food Stamp Program the administrative

procedures are as follows: (1) For Program benefit recipients--State

administrative procedures issued pursuant to 7 U.S.C. 2020(e)(1) and 7

CFR 273.15; (2) for State agencies--administrative procedures issued

pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for rules related to

non-quality control (QC) liabilities) or Part 284 (for rules related to

QC liabilities); (3) for Program retailers and wholesalers--

administrative procedures issued pursuant to 7 U.S.C. 2023 set out at 7

CFR 278.8.

Background

On October 3, 1994, the Department published an interim rule at 59

FR 50153 (interim regulation) amending the food stamp regulations to

simplify the means by which households with elderly and disabled

members claim deductions from income for verified, prospective, non-

reimbursed medical expenses. Comments were solicited on the provisions

of the interim rule through December 2, 1994. This final action

addresses the commenters' concerns. Readers are referred to the interim

rule for a more complete understanding of this final action.

The Department received 5 comments on the interim rule. Two of the

commenters supported the interim rule, believing that it benefitted

households and State agencies alike by eliminating unnecessary

reporting requirements. Four of the five commenters raised issues which

are addressed below.

Budgeting of Medical Expenses

A commenter noted that, although the interim regulations require

State agencies to allow households to estimate, prospectively,

recurring medical expenses, they do not explicitly prohibit

retrospective budgeting of those expenses. Such retrospective budgeting

is prohibited by section 5(e) of the Food Stamp Act of 1977, as

amended, 7 USC 2014(e) (Act). Since only households in which all

members are elderly or disabled with no earned income are amongst those

groups of households exempt from retrospective budgeting, the interim

rule's failure to explicitly prohibit the retrospective budgeting of

medical expenses leaves open the possibility that some households'

medical expenses would be budgeted in that manner.

The Department agrees with the commenter that the interim

regulations failed to explicitly prohibit the retrospective budgeting

of medical expenses. Therefore, the Department is amending current

regulations at 7 CFR 273.21(f)(2)(iv) to require that State agencies

prospectively budget recurring medical expenses.

Verification of Medical Expenses

The same commenter requested clarification of the procedures for

State agency action on a household's voluntary report of a change in

medical expenses. Although reporting of changes in medical expenses

during the [[Page 17629]] certification period was not required by the

interim rule, the household was given the option of voluntarily

reporting any changes in medical expenses it incurred between

certifications. If the household voluntarily reported a change in its

medical expenses, the interim rule required the State agency to act on

the change in accordance with current regulations at 7 CFR 273.12(c).

The commenter felt that the reference was unclear and that further

clarification was necessary. The commenter was particularly concerned

about instances in which a household voluntarily reports a change in

medical expenses that would cause a decrease in the household's

allotment. Under current regulations at 7 CFR 273.12(c), the State

agency may act on a reported change that would decrease the household's

allotment or make the household ineligible without verification, though

verification which is required by 7 CFR 273.2(f) has to be obtained

prior to the household's recertification. The commenter felt that it

should be clear in the regulatory language at 7 CFR 273.2, that if the

household voluntarily reports a change in its recurring medical

expenses that would decrease its allotment, the State agency should act

on the change without requiring the household to verify it.

The Department agrees with the commenter that, with respect to

State agency action on a household's voluntary report of changes in

medical expenses, additional clarification of the requirements is

desirable. Therefore, the Department is amending 7 CFR 273.10(d)(4) and

7 CFR 273.21(i) and (j)(iii)(C) to describe the procedures for acting

on a household's voluntary report of changes in its medical expenses.

The State agency is required to verify reported changes that would

increase a household's allotment. The State agency has the option of

either requiring verification prior to acting on the changes, or

requiring the verification prior to the second normal monthly allotment

after the change is reported. In the case of a reported change that

would decrease the household's allotment, or make the household

ineligible, the State agency shall act on the change without

verification, though verification which is required by 7 CFR 273.2(f)

has to be obtained prior to the household's recertification.

Restored Benefits

A commenter stated that the interim rule should have provided for

restoration of benefits back to October 1, 1991; the effective date of

section 1717 of the Mickey Leland Memorial Domestic Hunger Relief Act

of 1990 (1990 Leland Act), Title XVII, Public Law 101-624. The

commenter argued that, because the Department failed to issue

regulations in connection with section 1717 of the 1990 Leland Act,

elderly and disabled households were wrongfully denied allotments based

on recurring medical expenses during the period beginning October 1,

1991 (the effective date of section 1717 of the 1990 Leland Act) to

October 1, 1994 (the effective date of the October 3, 1994 interim

rule). The commenter believed that the interim regulations should

permit these households to receive restored benefits back to October 1,

1991.

Another commenter, however, questioned the need for the restoration

of benefits under the interim rule. The commenter noted that under

previous regulations, eligible households were receiving allowable

medical expense deductions and that the interim rule merely simplified

the process through which households can claim that deduction. Since

eligible households were already receiving a deduction, the commenter

asked in what case would a household be entitled to restored benefits.

The Department agrees with the second commenter that restored

benefits are not necessary in connection with the interim rule. The

provisions of the interim rule did not change eligibility requirements

for the medical deduction, but only simplified reporting procedures for

claiming the deduction. Households that claimed the deduction under the

previous rules should have received a benefit similar to that received

under current rules.

It could be argued that some eligible households may have refrained

from claiming the medical deduction under the old rules because they

felt that the former reporting requirements were too exacting, and that

if the simplification provisions of the October 3, 1994 interim

regulation had been published by the effective date of the 1990 Leland

Act, those households would have claimed the medical deduction.

However, restored benefits would not be appropriate for such households

since the Department's former reporting requirements were consistent

with the statute and within the Department's discretion. Therefore,

such households could not argue they were wrongfully denied benefits.

At the time the 1990 Leland Act was enacted, the Department

believed that its then existing regulations adequately addressed the

intent of section 1717. This claim was made in a proposed rule

(Miscellaneous Provisions of the Mickey Leland Memorial Domestic Hunger

Relief Act, June 28, 1991, 56 FR 29594), and no comment was received to

the contrary. After learning that some States may have been confused

and were misapplying the reporting requirements, the Department first

issued regional memoranda and then exercised its discretion to revise

and simplify its rules in a way designed to ease the reporting burden

on both households and State agencies.

The Department maintains that its old rules satisfied the

requirements of section 1717 of the 1991 Leland Act. Under the rules

that existed at that time, a household's medical expense deduction for

the certification period was still based on the household's

prospectively estimated recurring medical expenses and there was no

change in the procedures that occur at the time of certification or

recertification. Households were, however, required to report

unanticipated changes of $25 or more which occurred during the

certification period.

The major simplification provision of the interim rule was the

elimination of the household's requirement to report unanticipated

changes of $25 or more in its medical expenses that it experienced

during the certification period. The Department believes that this

simplification was not required by section 1717 of the 1990 Leland Act

but was within the discretion of the Department to further simplify

medical deduction reporting procedures for households and beleaguered

State agencies alike.

The Department disagrees with the commenter that households

eligible for the medical deduction should be issued restored benefits.

First, the provisions of the interim rule merely simplified

discretionary reporting requirements and did not alter eligibility

requirements. Households eligible for the medical deduction would have

received essentially the same benefit under the old rules as they did

under the interim regulations. Second, though some households may have

refrained from claiming the medical expense deduction because of the

reporting requirements connected with the deduction, the Department

contends that since the regulations in effect prior to the interim rule

were reasonably within the Department's discretion when implementing

the medical expense provisions of the 1990 Leland Act, no household was

wrongly denied benefits.

Consistent with the above, the Department is not amending the

interim regulations to provide for the restoration [[Page 17630]] of

benefits back to October 1, 1991 for households eligible for the

medical expense deduction. The Department, however, is amending the

interim regulations at 7 CFR 272.1(g)(138) to eliminate the requirement

that restored benefits be issued back to October 1, 1994, the effective

date of the interim rule, for households converted to the interim

rule's procedures after the effective date. As noted by the second

commenter, households eligible for the medical expense deduction were

receiving correct deductions under prior regulations, and thus restored

benefits are not necessary. If the household properly reported and

verified its allowable medical expenses, it should have received the

correct amount of benefits.

On a related issue, a commenter wrote that State agencies should be

required to notify eligible households immediately of the provisions of

the interim rule. The interim rule required State agencies to implement

the changes in medical deduction policy on October 1, 1994, and all

households that newly apply for Program benefits on or after October 1,

1994 would be subject to the interim rule procedures. For households

participating prior to October 1, 1994, the interim rule required that

they be subject to the new provisions at their request, at the time of

recertification, or when their case is next reviewed, whichever occurs

first. The State agency is required to provide restored benefits to

such households back to the required implementation date or the date of

application, whichever is later.

The commenter felt that since households are unlikely to know about

the changes in medical deduction policy required by the October 3, 1994

interim rule and, therefore, are unlikely to request benefit conversion

to the new policy, State agencies should be required to notify

households of the provisions of the interim rule immediately and not

wait until the household's next recertification or case review. The

commenter noted that households with elderly or disabled persons are

likely to have longer certification periods, perhaps up to 24 months.

Therefore, waiting until a household's next recertification could delay

implementation of the interim rule's provisions for several years. The

commenter also contended that restored benefits are insufficient

because they force vulnerable, hungry households to go without benefits

during the certification period when they most need the assistance.

The provisions of the interim rule simplify the means by which

households with elderly and disabled members can claim the medical

deduction. Those provisions benefit both eligible households and State

agencies by reducing the reporting burden associated with the

deduction. The Department agrees with the commenter, therefore, that it

is in the best interest of both households and State agencies for

eligible households to be made aware of the interim rule's procedures

as soon as possible. Therefore, the Department is revising the

implementation regulations of the interim rule at 7 CFR 272.1(g)(138)

to require that State agencies notify all households eligible for the

medical expense deduction of the change in medical deduction reporting

procedures and of their right to be converted to those new procedures

immediately. The method of notification is being left up to the State

agencies.

Another commenter requested clarification of a State agency's

obligation to establish claims or provide supplemental benefits to

households as a result of the changes in medical deduction policy. As

noted above, a household's medical deduction is based on expenses

reported at certification and changes in those expenses that can be

reasonably anticipated. The household does not have to report any

changes in its medical expenses during the certification period. The

State agency would learn of any difference between the deduction and

actual costs at the household's next recertification, when the

household would be required to report and verify all of its current

medical expenses. However, the State agency would not be allowed to

apply this information to the previous (i.e., ending) certification

period.

Because of the change in policy regarding the reporting of medical

expenses during the certification period, the State agency shall not

issue supplements to or establish claims against households that choose

not to report and/or verify changes in medical expenses when they occur

during the certification period. The Department is amending the interim

regulations at 7 CFR 273.10(d)(4) to clarify this requirement.

Implementation

Under the interim rule, the provisions addressed in this final rule

were effective October 1, 1994. The Department received one comment

criticizing the short implementation time of the interim rule. The

commenter wrote that State agencies are put in an awkward position

whenever regulatory changes are made effective prior to the date of

release of a regulation. This anomaly, the commenter noted, usually

results because of the statutory implementation date of a provision.

The provisions of the October 3, 1994 interim rule, however, were

discretionary, and the commenter felt that the Department could have

afforded State agencies a reasonable period of time for implementation.

The Department understands the difficulties State agencies

encounter when the effective date of a rule precedes its publication

date. However, the Department felt that, due to apparent misapplication

of the reporting requirements by some State agencies, the provisions of

the interim rule were important enough to warrant a retroactive

implementation date. In addition, in the Spring of 1994, the Department

informed State agencies through its regional offices of the likelihood

of a change in regulations regarding the medical expense deduction,

thus giving State agencies the opportunity to do advanced planning in

regard to implementing the rule. No change in the interim rule's

effective date is being made in this final rule.

The provisions of this final action which adopt as final without

change provisions of the interim rule were effective as of October 1,

1994. The provisions of this final action which require alteration of

State procedures are to be effective May 8, 1995 and must be

implemented no later than September 5, 1995.

Any variance resulting from the implementation of the provisions of

this final rule shall be excluded from quality control error analysis

for 120 days from the required implementation date in accordance with 7

CFR 275.12(d)(2)(vii).

List of Subjects

7 CFR Part 272

Alaska, Civil rights, Food stamps, Grant programs-social programs,

Reporting and recordkeeping requirements.

7 CFR Part 273

Administrative practice and procedure, Aliens, Claims, Food stamps,

Fraud, Grant programs--social programs, Penalties, Records, Reporting

and recordkeeping requirements, Social security.

Accordingly, the interim rule amending 7 CFR 272 and 273 which was

published at 59 FR 50153 on October 3, 1994, is adopted as a final rule

with the following changes:

1. The authority citation for 7 CFR parts 272 and 273 continues to

read as follows:

Authority: 7 U.S.C. 2011-2032. [[Page 17631]]

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

2. In Sec. 272.1, paragraph (g)(138) is revised to read as follows:

Sec. 272.1 General terms and conditions.

* * * * *

(g) Implementation * * *

(138) Amendment No. 359 The provision of Amendment No. 359

regarding the medical expense deduction is effective and must be

implemented no later than October 1, 1994. Any variances resulting from

implementation of the provisions of this amendment shall be excluded

from error analysis for 120 days from this required implementation date

in accordance with 275.12(d)(2)(vii) of this chapter. The provision

must be implemented for all households that newly apply for Program

benefits on or after the required implementation date. State agencies

must notify households eligible for the deduction of the change in

medical deduction reporting requirements and the right of the household

to be converted to those new procedures immediately. The current

caseload shall be converted to these provisions at the household's

request, at the time of recertification, or when the case is next

reviewed, whichever occurs first.

* * * * *

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

3. In Sec. 273.10, the eighth sentence of paragraph (d)(4) is

removed, and three new sentences are added to the end of paragraph to

read as follows:

Sec. 273.10 Determining household eligibility and benefit levels.

* * * * *

(d) Determining deductions. * * *

(4) Anticipating expenses. * * * If the household voluntarily

reports a change in its medical expenses, the State agency shall verify

the change in accordance with Sec. 273.2(f)(8)(ii) if the change would

increase the household's allotment. The State agency has the option of

either requiring verification prior to acting on the change, or

requiring the verification prior to the second normal monthly allotment

after the change is reported. In the case of a reported change that

would decrease the household's allotment, or make the household

ineligible, the State agency shall act on the change without requiring

verification, though verification which is required by Sec. 273.2(f)(8)

shall be obtained prior to the household's recertification.

* * * * *

4. In Sec. 273.21:

a. Paragraph (f)(2)(iv) is amended by adding the words ``, except

medical expenses,'' after the words ``prorated over two or more

months'' in the first sentence, and by adding a new sentence after the

first sentence.

b. The third sentence of paragraph (i) is revised and a fourth

sentence is added.

c. Paragraph (j)(3)(iii)(C) is revised.

The revisions and addition read as follows:

Sec. 273.21 Monthly Reporting and Retrospective Budgeting (MRRB).

* * * * *

(f) Calculating allotments for households following the beginning

months. * * *

(2) Income and deductions. * * *

(iv) * * * Medical expenses shall be budgeted prospectively. * * *

* * * * *

(i) Verification. * * * If the household voluntarily reports a

change in its medical expenses, the State agency shall verify the

change in accordance with Sec. 273.2(f)(8)(ii) before acting on it if

the change would increase the household's allotment. In the case of a

reported change that would decrease the household's allotment, or make

the household ineligible, the State agency shall act on the change

without requiring verification, though verification which is required

by Sec. 273.2(f)(8)(i) shall be obtained prior to the household's

recertification.

(j) State agency action on reports. * * *

(3) Incomplete filing. * * *

(iii) * * *

(C) If a household fails to verify a change in reported medical

expenses in accordance with Sec. 273.2(f)(8), and that change would

increase the household's allotment, the State agency shall not make the

change. The State agency shall act on reported changes without

requiring verification if the changes would decrease the household's

allotment, or make the household ineligible.

* * * * *

Dated: March 30, 1995.

Ellen Haas,

Under Secretary for Food, Nutrition, and Consumer Services.

[FR Doc. 95-8492 Filed 4-6-95; 8:45 am]

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