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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A99-28693

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** November 8, 1999
- **Citation:** 64 FR 60882

## Text

SUMMARY: Section 4901 of the Balanced Budget Act of 1997 (BBA) amended
the Social Security Act by adding a new title XXI. 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 proposed rule would implement provisions related to the State
Children's Health Insurance Program (CHIP)including State plan
requirements, coverage and benefits, eligibility, beneficiary financial
responsibility, strategic planning, substitution of coverage, program
integrity, and waivers. In addition, this proposed rule would implement
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.

DATES: Written comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5:00 p.m. on
January 7, 2000.

ADDRESSES: Mail written comments (one original and three copies) to the
following address: Health Care Financing Administration, Department of
Health and Human Services, Attention: HCFA-2006-P, P.O. Box 8010,
Baltimore, MD 21244-8010.
If you prefer, you may deliver your written comments (one original
and three copies) to one of the following addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW,
Washington, DC, or
Room C5-14-03, Central Building, 7500 Security Boulevard, Baltimore,
Maryland

If you wish to submit written comments on the information
collection requirements contained in this proposed rule, you may submit
written comments to the following:

Lori Schack, HCFA Medicaid Desk Officer, Office of Information and
Regulatory Affairs, Room 10235, New Executive Office Building,
Washington, DC 20503; and
Health Care Financing Administration, Office of Information Services,
Security and Standards Group, Division of HCFA Enterprise Standards,
Room N2-14-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.
ATTN: John Burke, HCFA-2006-P

FOR FURTHER INFORMATION CONTACT:

Regina Fletcher for general information, (410)786-3293;
Diona Kristian for subpart A, State plan, (410)786-3283;
Jeannine Witles for subpart C, Eligibility, (410)786-5664;
Cindy Ruff for subpart D, Benefits, (410)786-5916;
Christine Hinds for subpart E, Cost sharing, (410)786-4578;
Barbara Greenberg for subpart G, Strategic planning, (410)786-0435;
Anna Fallierias for subpart H, Substitution of coverage, (410)786-8281;
Jennifer Ryan for subpart I, Program integrity and beneficiary
protections, (410)786-1304;
Cindy Ruff for subpart J, Allowable waivers, (410)786-5916;
Judy Rhoades for section K of preamble, Expanded coverage of children
under Medicaid and Medicaid coordination, (410)786-4462;
Chris Hinds for section L of preamble, Medicaid disproportionate share
hospital expenditures, (410)786-4578;
Joan Mahanes for section M of preamble, Vaccines for Children program,
(410)786-4583

SUPPLEMENTARY INFORMATION:

Comments, Procedures, Availability of Copies, and Electronic Access

Because of staff and resource limitations, we cannot accept
comments by facsimile (FAX) transmission. In commenting, please refer
to file code HCFA-2006-P. Comments received timely will be available
for public inspection as they are received, generally beginning
approximately 3 weeks after publication of a document, in Room 443-G of
the Department's office at 200 Independence Avenue, SW., Washington,
DC, on Monday through Friday of each week from 8:30 to 5 p.m. (phone:
(202) 690-7890).
Copies: To order copies of the Federal Register containing this
document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
of the issue requested and enclose a check or money order payable to
the Superintendent of Documents, or enclose your Visa or Master Card
number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 or by faxing to (202) 512-
2250. The cost for each copy is $8. As an alternative, you can view and
photocopy the Federal Register document at most libraries designated as
Federal Depository Libraries and at many other public and academic
libraries throughout the country that receive the Federal Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web; the Superintendent of Documents home page address
is http://www.access.gpo.gov/nara__docs/, by using local WAIS client
software, or by telnet to swais.access.gpo.gov, then login as guest (no
password required). Dial-in users should use communications software
and modem to call 202-512-1661; type swais, then login as guest (no
password required).

I. Background

Section 4901 of the Balanced Budget Act of 1997 (BBA), Public Law
105-33, as amended by Public Law 105-100, added title XXI to the Social
Security Act (the Act). Title XXI authorizes a new State Children's
Health Insurance Program (CHIP) 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)
obtaining coverage under a separate child health program that meets the
requirements specified under section 2103 of the Act; or (2) expanding
benefits under the State's Medicaid plan under title XIX of the Act; or
(3) a combination of both. 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.
This proposed rule would implement 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

[[Page 60883]]

entitlement to title XXI funds, and the effective date of the program.
Section 2102 of the Act, which sets forth the requirements
for 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) relating to cost-effective community based health
delivery systems; 2105(c)(3) relating to family coverage; 2105(c)(5)
relating to cost sharing and 2105(c)(7) relating to limitations on
payment for abortion.
Section 2106 of the Act, which describes the process for
submission, approval and amendment 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 provides that health
insurance coverage provided under a State child health program and
coverage provided as a cost effective alternative are treated as
``creditable coverage'' under section 2701(c) of the Public Health
Service Act (PHS).
Section 2110 of the Act, which includes title XXI
definitions.
This proposed rule would also implement the provisions of sections
4911 and 4912 of the BBA, which 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 targeted and optional low-income children
eligible for enhanced Medicaid match for expanded eligibility under
Medicaid. Section 4912 of the BBA added a new section 1920A to the Act
creating a new optional group for presumptive eligibility for children.
Both title XXI and title XIX statutory provisions are discussed in
detail in section II of this preamble.
We note that on March 4, 1999, we published in the Federal Register
a proposed rule concerning financial program allotments and payments to
States under CHIP at 64 FR 10412. In that rule, we proposed to
implement sections 2104 and portions of 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 March
4, 1999 proposed rule.

II. Provisions of the Proposed Rule

A. Overview

Title XXI authorizes grants to States that initiate or expand
health insurance programs for low-income, uninsured children. A
Children's Health Insurance Program (CHIP) under title XXI 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, eligible groups, benefit packages, payment
levels for coverage and administrative and operating procedures. CHIP
provides a capped amount of funds to States on a matched basis for
fiscal years (FY) 1998 through 2007. At the Federal level, CHIP 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 that could be effective on or after
October 1, 1997. The short time frame between the enactment of the BBA
(August 5, 1997) and the availability of the funding for States
required the Department to begin reviewing CHIP plans submitted by
States and Territories at the same time as it was issuing guidance to
States on how to operate the CHIP programs. The Department worked
closely with States to disseminate as much information as possible, as
quickly as possible, so States could begin to implement their new
programs expeditiously.
The Department began issuing guidance to States within one month of
enactment of the BBA. We provided information on each State's allotment
through two Federal Register notices published on September 12, 1997
(62 FR 48098) and February 8, 1999 (64 FR 6102). We developed a model
application template to assist State's in applying for title XXI funds.
We provided over 100 answers to frequently asked questions. We issued
policy guidance through a series of 20 letters to State health
officials. All of this information is available on our website located
on the Internet at ``http://www.HCFA.gov.'' We have also provided
technical assistance to all States in development of CHIP applications.
CHIP programs operate in almost every State and Territory in the
country. As of April 27 1999, we have approved 52 CHIP plans and have
approved 15 amendments to these plans. Prior to the enactment of Public
Law 105-174, which gave States an additional year to secure their
fiscal year 1998 CHIP allotments, a number of States originally
submitted ``place-holder'' plans in order to secure their fiscal year
1998 allotments. Many of these States now indicate that they will
submit amendments to further expand their programs. Over half of the
approved CHIP plans already provide coverage to families with income
levels at or above 200 percent of the poverty line. We expect that most
of the States and Territories that have not yet expanded eligibility to
children in families with income at or below 200 percent of the Federal
poverty line will eventually do so.
States and Territories have used the guidance we have issued to
design and implement their programs. We intend to formalize this
guidance in two regulations--a financial regulation mentioned
previously (the proposed rule published March 4, 1999) and this
proposed programmatic regulation. This proposed regulation incorporates
much of the programmatic guidance that already has been issued to
States.
In addition, this proposed rule addresses beneficiary protections
necessary for the program to effectively function. These fundamental
protections are consistent with the Presidential directive known as the
Consumer Bill of Rights and Responsibilities. See subpart I for a
discussion of the rights which are addressed in this proposed rule.
This proposed regulation builds upon previously released guidance
and therefore, most of the regulation represents policies that have
been in operation for some time. As we continue to implement the
program, however, we have identified a number of areas in which we
further elaborate on previous guidance or propose new policies that
have not yet been made public. In an attempt to highlight the key
issues, a brief summary follows:
Subpart A--State Plan Requirements
The regulation would clarify several conditions under which States
must submit amendments to approved CHIP plans. For example, we propose
that States submit a plan amendment when the funding source of the
State share changes, prior to such change taking effect. The purpose of
this proposed requirement is to ensure that programs are operated using
only permissible sources of funding. In addition, amendments to impose
cost-sharing on

[[Page 60884]]

beneficiaries, increase existing cost-sharing charges, or increase the
cumulative cost sharing maximum will be considered the same as
amendments proposing a restriction in benefits. Therefore, States will
be required to follow rules regarding prior public notice and
retroactive effective dates.
Subpart C--Eligibility, Screening, Applications and Enrollment
Title XXI prohibits the participation of children of public agency
employees who are eligible to participate in a State health benefits
plan. The only case where such a child could be covered under CHIP is
the case where the employer provides no more than a nominal
contribution available for the child's health benefits coverage. We
propose to clarify that these children would not be considered to be
``eligible for health benefits coverage under a State health benefits
plan'' and could then be eligible for coverage through CHIP.
Subpart D--Coverage and Benefits
The proposed regulation provides some flexibility for States in
keeping the benefit package current. States using the benchmark benefit
package option are not required to submit an amendment each time the
benchmark package changes. States need only submit amendments when
proposing to make a change to the benefit package for the separate
child health program, and then they only need to compare their benefit
package to the most recent benchmark package.
The proposed regulation also clarifies policy regarding the
conditions under which abortion services are permitted under title XXI
and proposes that managed care entities providing this service must do
so under a separate contract.
Subpart E--Beneficiary Financial Responsibilities
The statute places a 5 percent cap on cost-sharing expenditures for
families with incomes greater than 150 percent of the Federal Poverty
Level (FPL) who are enrolled in separate child health programs. In an
attempt to preserve State flexibility, the proposed regulation gives
States the option to use either gross or net family income when
calculating the cost-sharing cap.
In addition, the regulation proposes to place a comparable limit of
2.5 percent on cost-sharing for families with incomes below 150 percent
of the poverty line, in order to ensure that those families with lower
incomes will not be forced to pay the same amount of cost-sharing as
those with higher incomes. In addition, States have the option to apply
cost-sharing imposed on adults in CHIP family coverage plans toward the
cumulative maximum cap.
The regulation proposes that States must have a process in place
that will protect beneficiaries by ensuring ``due process'' before
beneficiaries can be disenrolled from the program for failure to pay
cost-sharing. This preamble suggests that States may look for a pattern
of nonpayment, provide clear notice and opportunities for late payment,
and wait at least one billing cycle 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 regulation incorporates 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.
Subpart G--Strategic Planning, Reporting and Evaluation
The regulation includes provisions intended to ensure compliance
with both the statute, the elements of the State's title XXI plan and
the onsite review of State programs. In addition, monitoring will
enable tracking of CHIP data submissions, which will ultimately help
ensure enrollment in both the CHIP and Medicaid programs.
Subpart I--Program Integrity and Beneficiary Protections
This subpart is intended to underscore the importance of preserving
program integrity in the Children's Health Insurance Program. The
regulation proposes that States must have fraud and abuse protections
in place, but provides flexibility to States in developing program
integrity protections for separate child health programs. States are
encouraged to utilize systems already existing for Medicaid, but are
not required to do so.
In addition, the regulation proposes that States have additional
flexibility in setting procurement standards more broadly than
Medicaid. States may choose to base payment rates on public and/or
private rates for comparable services, and where appropriate, establish
higher rates in order to ensure sufficient provider participation.
Finally, this regulation includes various beneficiary protections
consistent with the President's directive regarding the Consumer Bill
of Rights and Responsibilities. Provisions are included throughout the
regulation to ensure that beneficiaries are given the opportunity to
participate in and make informed medical decisions, to have access to
needed services, and to be treated with dignity and respect.
Subpart J--Waivers
The proposed regulation discusses the circumstances under which
States may obtain a waiver in order to provide Title XXI coverage to
entire families. We propose that in order to qualify for such a waiver,
the State must meet several requirements, including a requirement that
the proposal be cost effective.
Under our proposal, the new provisions for the Children's Health
Insurance Program would be set forth 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 March 4, 1999 proposed financial
regulation.
The proposed table of contents for new part 457, subchapter D is as
follows:

Subchapter D--Children's Health Insurance Program (CHIP)

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.
Sec. 457.2 Basis and scope of subchapter D.
Sec. 457.10 Definitions and use of terms.
Sec. 457.30 Basis, scope, and applicability of subpart A.
Sec. 457.40 State program administration.
Sec. 457.50 State plan.
Sec. 457.60 Amendments.
Sec. 457.65 Duration of State plans and plan amendments.
Sec. 457.70 Program options.
Sec. 457.80 Current State child health insurance coverage and
coordination.
Sec. 457.90 Outreach.
Sec. 457.110 Enrollment assistance and information requirements.
Sec. 457.120 Public involvement in program development.
Sec. 457.125 Provision of child health assistance to American Indian
and Alaska Native children.
Sec. 457.130 Civil rights assurance.
Sec. 457.135 Assurance of compliance with other provisions.
Sec. 457.140 Budget.
Sec. 457.150 HCFA review of State plan material.
Sec. 457.160 Notice and timing of HCFA action on State plan material.

[[Page 60885]]

Sec. 457.170 Withdrawal process.
Sec. 457.190 Administrative and judicial review of action on State
plan material.

Subpart B--[Reserved]

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

Sec. 457.300 Basis, scope, and applicability.
Sec. 457.301 Definitions and use of terms.
Sec. 457.305 State plan provisions.
Sec. 457.310 Targeted low-income child.
Sec. 457.320 Other eligibility standards.
Sec. 457.340 Application.
Sec. 457.350 Eligibility screening.
Sec. 457.360 Facilitating Medicaid enrollment.
Sec. 457.361 Application for and enrollment in CHIP.
Sec. 457.365 Grievances and appeals.

Subpart D--Coverage and Benefits: General Provisions

Sec. 457.401 Basis, scope, and applicability.
Sec. 457.402 Child health assistance and other definitions.
Sec. 457.410 Health benefits coverage options.
Sec. 457.420 Benchmark health benefits coverage.
Sec. 457.430 Benchmark-equivalent health benefits coverage.
Sec. 457.431 Actuarial report for benchmark-equivalent coverage.
Sec. 457.440 Existing comprehensive State-based coverage.
Sec. 457.450 Secretary-approved coverage.
Sec. 457.470 Prohibited coverage.
Sec. 457.475 Limitations on coverage: Abortions.
Sec. 457.480 Preexisting condition exclusions and relation to other
laws.
Sec. 457.490 Delivery and utilization control systems.
Sec. 457.495 Grievances and appeals.

Subpart E--State Plan Requirements: Beneficiary Financial
Responsibilities

Sec. 457.500 Basis, scope, and applicability.
Sec. 457.505 General State plan requirements.
Sec. 457.510 Premiums, enrollment fees, or similar fees: State plan
requirements.
Sec. 457.515 Co-payments, coinsurance, deductibles, or similar cost
sharing charges: State plan requirements.
Sec. 457.520 Cost sharing for well-baby and well-child care.
Sec. 457.525 Public schedule.
Sec. 457.530 General cost sharing protection for lower income
children.
Sec. 457.535 Cost sharing protection to ensure enrollment of American
Indians/Alaska Natives.
Sec. 457.540 Cost sharing charges for children in families at or below
150 percent of the Federal poverty line (FPL).
Sec. 457.545 Cost sharing for children in families above 150 percent
of the FPL.
Sec. 457.550 Restriction on the frequency of cost sharing charges on
targeted low-income children in families at or below 150 percent of the
FPL.
Sec. 457.555 Maximum allowable cost sharing charges on targeted low-
income children at or below 150 percent of the FPL.
Sec. 457.560 Cumulative cost sharing maximum.
Sec. 457.565 Grievances and appeals.
Sec. 457.570 Disenrollment protections.

Subpart F--[Reserved]

Subpart G--Strategic Planning, Reporting, and Evaluation

Sec. 457.700 Basis, scope, and applicability.
Sec. 457.710 State plan requirements: Strategic objectives and
performance goals.
Sec. 457.720 State plan requirement: State assurance regarding data
collection, records, and reports.
Sec. 457.730 State plan requirement: State annual reports and
evaluation.
Sec. 457.735 State plan requirement: State assurance of the quality
and appropriateness of care.
Sec. 457.740 State expenditures and statistical reports.
Sec. 457.750 Annual report.
Sec. 457.760 State evaluations.

Subpart H--Substitution of Coverage

Sec. 457.800 Basis, scope, and applicability.
Sec. 457.805 State plan requirements: Private coverage substitution.
Sec. 457.810 Premium assistance for employer-sponsored group health
plans: Required protections against substitution.

Subpart I--Program Integrity and Beneficiary Protections

Sec. 457.900 Basis, scope, and applicability.
Sec. 457.902 Definitions.
Sec. 457.910 State program administration.
Sec. 457.915 Fraud detection and investigation.
Sec. 457.920 Accessible means to report fraud and abuse.
Sec. 457.925 Preliminary investigation.
Sec. 457.930 Full investigation, resolution, and reporting
requirements.
Sec. 457.935 Sanctions and related penalties.
Sec. 457.940 Procurement standards.
Sec. 457.945 Certification for contracts and proposals.
Sec. 457.950 Contract and payment requirements including certification
of payment related information.
Sec. 457.955 Conditions necessary to contract as a managed care entity
(MCE).
Sec. 457.960 Reporting changes in eligibility and redetermining
eligibility.
Sec. 457.965 Documentation.
Sec. 457.970 Eligibility and income verification.
Sec. 457.975 Redetermination intervals in cases of suspected
enrollment fraud.
Sec. 457.980 Verification of enrollment and provider services
received.
Sec. 457.985 Enrollee rights to file grievances and appeals.
Sec. 457.990 Privacy protections.
Sec. 457.995 Consumer Bill of Rights and Responsibilities.

Subpart J--Allowable Waivers: General Provisions

Sec. 457.1000 Basis, scope, and applicability.
Sec. 457.1005 Waiver for cost-effective coverage through a community-
based health delivery system.
Sec. 457.1010 Waiver for purchase of family coverage.
Sec. 457.1015 Cost-effectiveness.
Editor's note: In the preamble we discuss new CHIP provisions (part
457) before we discuss relevant changes to the Medicaid regulations
(Medicaid coordination, section K of the preamble, and parts 431, 433,
and 435 of the regulations text). We believe this order is the most
logical presentation for the preamble. However, because regulations
text must be set forth in numerical order, proposed changes to the
Medicaid regulations precede the new regulations text for part 457.

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

1. Program Description (Sec. 457.1)
Proposed Sec. 457.1 states that 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

[[Page 60886]]

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.
2. Basis and Scope of Subchapter D (Sec. 457.2)
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 would 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
Sec. 457.310.
3. Definitions and Use of Terms (Sec. 457.10)
This subpart includes the definitions relevant specifically to the
Children's Health Insurance Program under title XXI. We have defined in
this subpart 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 those
subparts, however, all the terms are listed here. For example, since
the definition of ``targeted low-income child'' is specifically
relevant in making eligibility determinations, the term is defined in
subpart C--Eligibility. Because of the unique Federal-State
relationship that is the basis for this program and because of our
commitment to State flexibility, we determined States should have the
discretion to define many terms.
In accordance with section 2110 of the Act, which sets forth
definitions for title XXI, we propose to adopt definitions for the
terms, ``creditable health coverage'', ``group health insurance
coverage'', ``group health plan'' and ``preexisting condition
exclusion'' from sections 2701(c) and 2791 of the Public Health Service
Act (PHS) (42 U.S.C. 300gg(c)) as specifically required under the
statute. These definitions are consistent with the definitions set
forth in regulations at 45 CFR 144.103 and 146.113. Section 2109(a)(1)
of title XXI provides that health insurance coverage provided under a
State child health plan and coverage provided as a cost-effective
alternative are treated as ``creditable coverage'' under section
2701(c) of the PHS Act. In addition, section 2103(f) of title XXI
provides that the State plan cannot impose a preexisting condition
exclusion; however, if the State plan provides for benefits through
payment for, or contract with, a group health plan or health insurance
coverage, the State plan can permit the imposition of a preexisting
condition exclusion insofar as it is permitted under HIPAA. (Creditable
coverage counts as credit for previous health coverage against the
application of a preexisting condition exclusion period when moving
from one group health plan to another, from a group health plan to an
individual policy, or from an individual policy to a group health
plan.)
We propose 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
Sec. 457.402 of these proposed regulations.
Children's Health Insurance Program (CHIP) 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 Sec. 457.902.
Cost-effectiveness has the meaning assigned in
Sec. 457.1015 of these proposed regulations.
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
Sec. 457.402 of these proposed regulations.
Emergency services has the meaning assigned in
Sec. 457.402 of these proposed regulations.
Employment with a public agency has the meaning assigned
in Sec. 457.301 of these proposed regulations.
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
Sec. 457.902 of these proposed regulations.
Grievance has the meaning assigned in Sec. 457.902 of
these proposed regulations.
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.

[[Page 60887]]

Health benefits coverage has the meaning assigned in
Sec. 457.402 of these proposed regulations.
Health maintenance organization (HMO) plan has the meaning
assigned in Sec. 457.420 of these proposed regulations.
Legal obligation has the meaning assigned in Sec. 457.555
of these proposed regulations.
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
Sec. 457.902 of these proposed regulations.
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
Sec. 457.402 of these proposed regulations.
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 Sec. 457.301 of
these propose regulations.
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
Sec. 457.301 of these proposed regulations.
State plan means the approved or pending title XXI State
child health plan.
State program integrity unit has the meaning assigned in
Sec. 457.902 of these proposed regulations.
Targeted low-income child has the meaning assigned in
Sec. 457.310 of these proposed regulations.
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 Sec. 457.520 of the
proposed regulations.
4. Basis, Scope, and Applicability of Subpart A (Sec. 457.30)
This subpart interprets sections 2101(a) and (b), 2102(a), 2102(c),
2106, 2107(c), (d) and (e) of title XXI of the Social Security Act and
sets forth the related State plan requirements for a State child health
assistance program. It includes the requirements related to
administration of the State program and the process for Federal review
of a State plan or plan amendment. This subpart applies to all States
that seek to provide health benefits coverage through CHIP.
5. State Program Administration (Sec. 457.40)
Consistent with section 2106(d)(1) of the Act, we would specify in
Sec. 457.40(a) 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, HCFA
will review the operation of the program through on-site review or
monitoring of State programs. At proposed Sec. 457.40(a), we would
provide that HCFA will 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. There are two general
goals for the proposed monitoring provisions. Specifically, monitoring
will assure State compliance with both statutory and regulatory
requirements under title XXI and with the specifications of the State
plan. In addition, monitoring will allow us to track the submission of
requested data related to CHIP, including enrollment and expenditure
data and other efforts related to ultimately ensuring enrollment of
eligible children into both CHIP and Medicaid. Expected outcomes of
CHIP monitoring include: (1) Identifying the need for corrective
action, enforcement and improvement within State title XXI programs;
(2) recognizing and sharing best practices that may lead to increased
enrollment; (3) identifying States' needs for technical assistance; and
(4) informing HCFA as we prepare for the Secretary's report to
Congress.
The ongoing review of State programs is an evolving process as
there is wide variation among implemented children's health insurance
programs. Many programs are just being implemented, while others have
been built upon programs in existence long before the passage of title
XXI. Because of both variation in program design and differences in
stages of program implementation, we have established a flexible review
process that is focused primarily on assuring compliance with Federal
law and regulations. In subsequent years Federal review of State
programs may also examine how well programs are achieving the overall
goals outlined in their State plans and plan amendments.
In the Federal review process, however, we will monitor to ensure
consistent implementation of the core set of key policy areas
specifically described in the title XXI statute. We expect our
monitoring effort to be an interactive and informative process for both
the Department and the States. As a result, we plan to work with the
States to identify any areas of need for technical assistance, to
identify best practices that will assist States in understanding what
works in specific situations and to ensure policies are implemented
consistently across States.
Although HCFA central and regional offices are in constant contact
with the States, after the first anniversary of the

[[Page 60888]]

implementation of each CHIP, a formal State review will be conducted by
a team led by HCFA regional staff with participation of HRSA regional
staff.
The review process may include site visits and phone interviews.
Regional staff will put its preliminary findings into a report and
share that report with the State to provide an opportunity for response
to any issues raised in the review process before they make
recommendations and send the report to HCFA central office. If
necessary, HCFA, with participation of HRSA regional staff, will work
with States to address areas in which they are not in compliance with
either the statute, applicable regulations, or a State's plan.
The review process and the implications of noncompliance are
specifically addressed in Sec. 457.200, which was set forth in the
March 4, 1999 proposed financial regulation.
To ensure involvement in and commitment to the program at the
highest level of State government, we are proposing in Sec. 457.40(b)
to require that the State plan and plan amendments be signed by the
State Governor or by an individual who has been delegated authority by
the Governor to submit it. This individual could be the Secretary of
Health, the CHIP Administrator, the Medicaid Director or any other
individual who has authority, delegated by the Governor, to submit the
State plan or plan amendment. In order to facilitate communication
between the appropriate State and HCFA staff, we are proposing in
Sec. 457.40(c) to require that the State include in the State plan or
plan amendment the names of the State officials who are responsible for
program administration and financial oversight.
An additional aspect of program administration for the State is the
passage of enabling legislation, which a State may need to implement a
State plan. 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. 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. We are proposing this provision
so that we can approve State plans and plan amendments while a State's
legislative authority is pending. This provision is consistent with the
requirement that a State must implement and conduct its CHIP in
accordance with the approved State plan.
6. State Plan (Sec. 457.50)
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 CHIP and gives assurance that the program will
be administered in conformity with the specific requirements of title
XXI, title XIX (as appropriate), and the regulations in chapter IV. 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.
An approved State plan is comprised of the initial plan submission,
responses to requests for additional information and subsequent
approved State plan amendments. The first item that forms part of the
approved State plan is the State's original application. The
information that must be included in the original submission varies
according to how the State chooses to provide health benefits coverage.
In addition, the State's written responses to requests from HCFA for
additional information, whether formal or informal, and any other
written correspondence from the State are considered part of the
approved State plan. The State's correspondence modifies the original
submission; that is, information received from a State supersedes any
contrary information that is included in the original plan or other
earlier submissions. Moreover, if there are several submissions from
the State that are inconsistent, the latest submission is the governing
document. Most often the information in the additional responses should
clarify or add to the language of the original submission. All
documents that are included in the approved State plan will be
referenced in the approval letter. Documents pertaining to all State
plan amendments are also components of the approved State plan.
7. Amendments word (Sec. 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 propose in Sec. 457.60(a) that the State plan must
be amended whenever necessary to reflect changes in Federal law,
regulations, policy interpretations or court decision; changes in State
law, organization, policy or operation of the program; and changes in
the source of the State share of funding.
Although the proposed language of Sec. 457.60(a) contains no
exceptions, we believe in practice only changes that are substantial
and noticeable would require amendments. Changes in program elements
that would not ordinarily be required to be included in the State plan
at all would thus not require an amendment. For example, a change in
the date for mailing enrollment material from June 1 to July 1 would
not be considered substantial or noticeable and a State plan amendment
would thus not be required. We are seeking comments on how to further
interpret and express in regulations the necessity for State plan
amendment submission.
We are proposing in Sec. 457.60(a)(3) to require an amendment if
the source of State share of funding changes. Furthermore, we are
proposing in Sec. 457.65(d) that such amendment must be submitted to
HCFA prior to such change taking effect. From the beginning of the
program, our policy has been to only approve State plans that can
assure, to our satisfaction, that the program has a permissible source
of funding. Pursuant to section 2107(e)(1)(C) of the Act, a State is
required as a condition for approval of its State plan to assure that
the State will comply with section 1903(w) of the Act, relating to
limitations on provider taxes and donations. Section 2107(d) of the Act
requires that the State plan include a description of the budget, which
is an advance plan for expenditures. Section 2107(d) also provides that
the budget be updated periodically as necessary. We believe that
proposed Sec. 457.60(a)(3) and Sec. 457.65(d) will ensure ongoing
compliance with our requirement for permissible sources of funding and
will avoid situations that require a disallowance for non-compliance.
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 taxes related to health care 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
taxes used to generate general revenue.
We are proposing in Sec. 457.60(b) to require that a State
proposing to amend its plan include an amended 3-year budget if the
proposed amendment would result in different expenditures than those
described in the budget accompanying the approved State plan. Under
section 2107(d) of the Act, a State plan clearly must include the
budget for

[[Page 60889]]

the plan. If a plan amendment that affects the budget is approved
without a revision to the budget, then the current description of the
budget would no longer be accurate for the entire State plan. If the
proposed changes in the State plan amendment have no impact on the
budget, then an updated budget is not required.
8. Duration of State Plans and Plan Amendments (Sec. 457.65)
In Sec. 457.65, we propose that the State may choose any effective
date for its State plan or plan amendment, but no earlier than October
1, 1997. We believe that the intent of section 2106(a)(2)(B) of the Act
is to provide flexibility to States in choosing an effective date. We
considered requiring that a State must be providing health coverage to
targeted low-income children as of the date the State specified as its
effective date; however, such a requirement would preclude a State from
claiming FFP for administrative start-up costs that are eligible for
FFP. Therefore, in order to allow the State to claim program and
administrative expenditures that the State may incur prior to providing
coverage, we propose to define ``effective date'' as the date on which
the State begins to incur costs to implement its State plan or plan
amendment. This effective date may be prior to the date on which the
State begins to provide coverage to targeted low-income children.
A State may implement a State plan prior to approval of that plan
but this may put the State at some risk. If a State implements a plan
prior to approval and that plan is approved, the State can receive
Federal matching funds on a retroactive basis for expenses incurred for
programs operated in compliance with the approved plan and all
applicable statutory and regulatory requirements (other than expenses
incurred earlier than October 1, 1997).
Any State that implements an unapproved State plan risks the
possibility that the plan will not be approved as implemented. In the
event that the State plan is not approved as it was implemented, the
Federal government would not match the State's prior expenditures. HCFA
has no authority to pay claims for periods prior to the effective date
of the approved State plan for activities that are not consistent with
an approved plan, or for activities that do not meet the requirements
of title XXI. Section 2106 of the Act gives the Secretary authority to
disapprove an initial State plan submission that does not fully comply
with title XXI, and to approve an effective date for that State plan
submission. We believe this authority necessarily means that the
Secretary may deny an effective date that would include any time period
during which the operating program did not fully comply with title XXI.
Moreover, this authority permits the Secretary to deny claims for
Federal matching funds for such time periods. We base that conclusion
on the reasoning that there would be no approved State plan at the time
of any claimed expenditures during those time periods. Under section
2105(a), the Secretary is authorized to pay Federal matching funds to
States based on child health assistance and certain other expenditures
``under'' an approved State plan (up to the amount of the State's
allotment). Absent an approved State plan, no Federal matching funds
may be paid to a State. Although section 2106(c)(3) states that ``* * *
the Secretary shall provide a State with a reasonable opportunity for
correction before taking financial sanctions against the State on the
basis of such [a] disapproval,'' this provision does not require that
the Secretary accept claims in the absence of an approved State plan.
Any State that implements an unapproved State plan amendment also
risks the possibility that the plan amendment will not be approved as
implemented. The reasoning described above for State plans also applies
to State plan amendments that result in additional Federal financial
participation. For a State that implements an unapprovable State plan
amendment that results in expenditures that can be identified as beyond
the scope of the approved State plan, these expenditures could not be
used as a basis for Federal funding under section 2105(a)(1). An
example of this situation is the implementation of a State plan
amendment that adds a new population. For those populations, the
expenditures would simply be beyond the scope of the approved State
plan.
For unapproved State plan amendments that do not result in
expenditures that can be identified as beyond the scope of an approved
State plan, we believe a different analysis must be applied. The
implementation is a failure to conduct the State program in accordance
with the approved State plan, and would be subject to the compliance
remedies described in section 2106(d) of the Act. In this situation,
HCFA would only withhold Federal matching funds after following the
compliance procedures permitting the State a ``reasonable opportunity
for correction'' in accordance with section 2106(d)(2).
On March 4, 1999, we published a proposed rule addressing the
financial provisions for title XXI. We are proposing to clarify certain
provisions which were set forth in subpart B of that proposed rule.
Specifically, paragraph (d)(2) of Sec. 457.204, ``Withholding of
payment for failure to comply with Federal requirements,'' discusses
the opportunity for correction prior to a financial sanction for
failure to comply with a Federal requirement. As proposed,
Sec. 457.204(d)(2) provides 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. The proposed regulation would
implement section 2106(d)(2) of the Act, which 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. We would revise the proposed regulatory text at
Sec. 457.204(d)(2) to address in more detail the possible scope of
corrective action that could be required. We would specify that such
corrective action can include actions to ensure that the plan is and
will be administered consistent with applicable law and regulations,
actions to address past deficiencies in plan administration, and
actions to ensure equitable treatment of beneficiaries. We recognize
that not every situation will require all of these different types of
corrective action. We are reserving to the Secretary the determination
of the appropriate scope of corrective action under the individual
circumstances presented. Such a determination necessarily will be made
in the final determination on the findings of noncompliance, and will
be reflected in the final notice described in proposed
Sec. 457.204(d)(3).
Certain special provisions govern the establishment of allotments
for FY 1998 and FY 1999 for States that receive approval for their
State plans during FY 1999. Under Public Law 105-277, effective October
21, 1998, if a State submits a State plan during FY 1999, and the plan
is approved by HCFA by the end of FY 1999 (that is, by September 30,
1999), then CHIP allotments may be obligated for the State for both FY
1998 and FY 1999. The effective date for the State plan would be the
date requested by the State, but no earlier than the beginning of FY
1998, (that is, October 1, 1997).
After FY 1999, a State's initial State plan must be approved by
HCFA by the end of a fiscal year in order to receive a State CHIP
allotment for that fiscal year. For example, if HCFA approves a

[[Page 60890]]

State's initial State plan during FY 2000, the State could only receive
a State allotment for FY 2000; the State could not receive an allotment
for FY 1998 or for FY 1999. Since the State did not have a State plan
approved by HCFA in FY 1998 or by the end of FY 1999, it could not
receive a State allotment for FY 1998 or FY 1999.
If a State submits a State plan that is first approved during FY
2000, a FY 2000 allotment would be obligated for that State, but there
would be no allotment for FY 1998 or FY 1999. However, the FY 2000
allotment is potentially available to provide Federal financial
participation (FFP) in the State's allowable FY 1998 and FY 1999
expenditures, such as administrative costs, assuming the State has
requested an effective date for its State plan in one of those fiscal
years. For example, a State plan could be approved November 1, 1999, at
which time the FY 2000 allotment would be obligated, and have an
effective date of September 1, 1999, when the State began incurring
administrative costs related to the State plan. These administrative
costs could then be claimed under the FY 2000 allotment. Thus, a State
may potentially have an effective date for its State plan in a fiscal
year and receive FFP in expenditures incurred in a fiscal year for
which it does not have a State CHIP allotment.
Medicaid rules regarding effective dates continue to apply to child
health assistance provided under a Medicaid expansion program. In
accordance with Sec. 430.20(b) of the Medicaid regulations, the
effective date of title XIX State plan amendments cannot be earlier
than the first day of the quarter in which an approvable title XIX
State plan amendment is submitted to HCFA. It is, therefore, important
for a State to submit a title XIX State plan amendment either prior to
or during the calendar quarter in which it wants the amendment to take
effect. As discussed in proposed Sec. 457.70, States must submit both a
Medicaid State plan amendment and a title XXI plan for the Medicaid
expansion. Medicaid State plan amendments will be reviewed using the
established process for title XIX. We will make every effort to
coordinate the approval of a Medicaid State plan amendment with the
approval of the title XXI 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 would implement this
provision at proposed Sec. 457.65(a)(2). Thus, if a State plan
amendment is implemented but is not submitted within the required time
frame, the State risks being found out of compliance with its State
plan, and loss of Federal participation in expenditures beyond the
scope of the approved plan or other financial sanctions, as discussed
below and in the proposed financial regulation (64 FR 10412).
In accordance with section 2106(b)(3)(B)(ii) of the Act, 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. Section 2106(b)(3)(B)(i) requires 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. We propose to implement this
provision at Sec. 457.65(b). In the amendment request, the State should
describe the public notice process.
We are also proposing that State plan and State plan amendments
imposing new or increased cost sharing on beneficiaries would be
treated as a restriction on benefits and subject to the prior public
notice requirements set forth at Sec. 457.65 of these proposed
regulations. We view cost sharing as a restriction on benefits since a
beneficiary's financial responsibility for certain costs associated
with CHIP may be an impediment to the beneficiary's access to certain
covered services. Therefore, in accordance with section 2106(a)(3)(B)
of the Act, we are proposing that the State plan must comply with the
prior public notice requirements at Sec. 457.65 when the plan
implements cost sharing charges, increases the existing cost sharing
charges or increases the cumulative cost sharing maximum set forth at
proposed Sec. 457.555. We believe that prior public notice would give
interested parties the opportunity to react to the proposed changes. In
addition, our proposed notice requirements would allow States to take
into account the public's concerns regarding the potential impact of
cost sharing on beneficiary access to services and participation in
CHIP.
As discussed previously at proposed Sec. 457.65(d), we would
specify 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.
In accordance with section 2106(e) of the Act, at Sec. 457.65(e) we
propose that an approved State plan shall continue in effect unless and
until the State modifies its plan by obtaining approval of an amendment
to the State plan. The new plan will consist of the originally approved
State plan and any approved State plan amendments. The State plan shall
also continue in effect unless and 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 that exceeds Federal limits.
9. Program options (Sec. 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 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. 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).
Subpart G.
Subpart H (if the State elects the eligibility group for
optional targeted low-income children and elects to pay for employer-
sponsored insurance).
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). 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 March 4, 1999 proposed rule.
A State that chooses to implement a separate child health program
must

[[Page 60891]]

comply with all the requirements in part 457. We would set forth the
program options at Sec. 457.70(a).
At Sec. 457.70(b), we propose that a State plan must include a
description of the State's chosen program option. In addition, at
proposed Sec. 457.70(c) we specify that States choosing a Medicaid
expansion program must submit an amendment to the State's Medicaid
State plan as appropriate. These States will be required to complete an
abbreviated State plan and, in most circumstances, a Medicaid State
plan amendment. If a State is expanding Medicaid within the scope of an
1115 demonstration project, then that demonstration project may need to
be modified by submission of a formal request for a change to the
demonstration project and not through a Medicaid State plan amendment.
If such a modification is needed, then the request for a change to the
demonstration project must be submitted in addition to the title XXI
State plan. The abbreviated State plan must include the State plan
requirements specified in this subpart and subpart G of this proposed
rule. A State that chooses to implement a separate child health program
must include in its State plan all of the State plan requirements
specified in part 457. A State selecting a combination program would
need to submit a title XXI State plan, as well as a Medicaid State plan
amendment.
States may choose one option and switch to a different option at
any time if a State plan amendment describing this change meets the
requirements of the statute and these regulations and is approved by
HCFA.
10. Current State Child Health Insurance Coverage and Coordination
(Sec. 457.80)
In accordance with sections 2102(a)(1) and (2) and 2102(c)(2) of
the Act, we propose to require that the State plan describe the State's
current approach to child health coverage and plans for coordination of
the program with other insurance programs in the State. We specify that
the State must provide a description of the following:
The extent to which, and manner in which, children in the
State, including targeted low-income children and other classes of
children, by income level and other relevant factors, currently have
creditable health coverage (as defined by Sec. 457.10) and, if
sufficient information is available, whether the creditable health
coverage they have is under public health insurance programs or health
insurance programs that involve public-private partnerships.
Current State efforts to provide or obtain creditable
health coverage for uncovered children, including the steps the State
is taking to identify and enroll all uncovered children who are
eligible to participate in public health insurance programs and health
insurance programs that involve public-private partnerships.
Procedures used by the State to accomplish coordination of
the program under title XXI with other public and private health
insurance programs, including procedures designed to increase the
number of children with creditable health coverage, and to ensure that
only eligible targeted low-income children are covered under title XXI.
The degree of creditable coverage a child has impacts whether a
preexisting condition exclusion applies and therefore, tracking this
information would be beneficial to the child.
The purpose of this section is to require the State to justify the
insurance expansion approach it has chosen to ensure that the State
does not use Federal funds to supplant existing programs and funding
but rather uses the funds for children who are uninsured. To the extent
possible, the income level categories by which the State reports the
current availability of creditable coverage should correspond to the
income level categories used for other purposes such as eligibility or
cost-sharing. The State may classify children by family income level,
age group, race and ethnicity, urban versus rural location and any
other categorization that the State finds useful in describing its
situation. If sufficient information is available, the State should
describe the extent to which the classes of children it sets forth are
insured through Medicaid, employer-based coverage, or other forms of
publicly supported insurance, such as State-only programs and public/
private partnerships. In addition, the State should describe the extent
to which children in the State are uninsured. The State plan should
clearly identify the sources of the data it uses in this section. We
recognize that States may not initially have data available for an in-
depth study of the insurance status of its children. However, the
information provided should be sufficient to illustrate that the State
has analyzed the problem, using available data sources. The demographic
information requested in this section can be used for State planning
and will be used strictly for informational purposes. These data will
not be used as a basis for the State's allotment. We also note that
these data are not necessarily the baseline data required to be
submitted as part of the annual report under subpart G.
In addition, at Sec. 457.80(b), we propose that the State must
provide an overview of current efforts made by the State through child
related programs (such as Medicaid, the Maternal and Child Health Block
Grant, title V, WIC, community and migrant health centers or special
State programs for child health care) to provide health care services
or obtain creditable health coverage for uncovered children by
identifying and enrolling all uncovered children.
Section 457.80(c) would require the State plan to include a
description of the coordination of the plan with other public and
private health insurance programs in accordance with sections
2102(a)(3) and 2102(c)(2) of the Act. This section of the State plan
should include an overview of how new enrollment outreach efforts will
be coordinated with and improve upon existing State efforts as
described in Sec. 457.80(a).
A State that implements a separate child health program should
describe how children who are determined to be eligible for Medicaid or
another State-only program will be referred to and enrolled into that
program, as required by proposed Sec. 457.350 and Sec. 457.360. Because
children identified as Medicaid eligible are required to be enrolled in
Medicaid, the State should describe how it will coordinate enrollment
in CHIP and Medicaid. The State plan should also describe how Medicaid
eligibility workers will refer non-Medicaid eligible children to the
separate child health program.
11. Outreach (Sec. 457.90)
In Sec. 457.90, we propose to require a State to implement an
outreach process to inform families of the availability of health
coverage programs and to assist families in enrolling their children
into a health coverage program pursuant to section 2102(c) of the Act.
A State plan must include a description of the procedures used for
outreach. According to the statute, a State has the option to decide
which methodologies and procedures it will use to inform families of
uninsured, potentially eligible children about enrollment for child
health assistance under the program. No single approach to reaching
these children is provided in the statute. While States are expected to
identify enrollment targets, they are encouraged to design and
implement outreach activities that will reach diverse groups of
children. We realize that the challenges States face in reaching out to
families and assuring access to services

[[Page 60892]]

are great and will require vigorous sustained efforts.
Outreach includes identifying, educating, and enrolling uninsured
children, while remaining sensitive to the cultural and linguistic
differences and special health care needs of diverse populations. There
is no one model for outreach and there are many examples of
successfully implemented, locally developed campaigns. Outreach is
intrinsically linked to eligibility and enrollment and calls for
activities that remove barriers that deter families from applying to
the program. At proposed Sec. 457.90(b), we set forth examples of
outreach strategies. The following two major types of outreach
procedures, when designed with the targeted populations in mind, serve
to encourage significant enrollment and reduction in the numbers of
uninsured children:
Education and awareness campaigns. A comprehensive
Statewide education and awareness campaign is needed to inform the
public about the importance of availability of CHIP and how to enroll
eligible children. Implementing this campaign in multiple venues
frequented by families, with culturally sensitive information, will
help to keep the message of health insurance in front of the target
audience. Families will benefit from educational programs designed to
inform them of the advantages of enrolling eligible children in health
insurance, including having a regular source of care, and obtaining
well-child check ups including immunization. All outreach efforts
should include information about how families can find out if their
children are eligible and how to get them enrolled.
Identifying families with uninsured children is the first step in
outreach. States must develop and sustain comprehensive education and
awareness campaigns to reach these children and families. Several data
sets are available to assist States in the identification of families
with uninsured children (for example, immunization registries, hospital
discharge databases, school lunch program participant lists and
hospital charity care databases). States should assure confidentiality
when using their own existing data to identify uninsured children.
Schools may also help in the education and awareness process as they
often know who the uninsured children are. School nurses and school
health centers, Parent Teacher Associations, and school health screens
and fairs offer excellent opportunities for outreach for this new
insurance program.
States often begin outreach campaigns by sending printed material
such as brochures, flyers, and program applications to families
considered to be potentially eligible for enrollment. States may choose
to target mailings to special audiences of potentially uninsured
children. Hispanic/Latinos, Tribal/Native Americans, adolescents,
African-Americans, Asians, migrant populations, rural and homeless, are
populations considered to have large numbers of uninsured children.
States have choices as to the breadth of distribution of program
materials, prepared specifically for the different targeted
subpopulations. Flyers, posters and brochures, developed in appropriate
languages, can be made available through many programs that are closely
identified with low-income families. Programs such as Head Start,
school lunch programs, Child Care Centers and WIC programs serve
thousands of low-income children. Welfare/food stamp offices are
frequented by low-income families who may be eligible for CHIP.
The provider community can also distribute program information.
States could include major providers such as clinics (especially for
newborns), hospitals, physicians (including OB/GYNs, pediatricians, and
family physicians), pharmacies, mobile health units, mental health/
addiction centers, and health trade associations.
Workers who live in the community, speak the language, and know its
cultural beliefs and practices can be effective in disseminating
information and answering basic questions. The diversity of the
uninsured population requires that States, in designing outreach
activities, be sensitive to the various cultural groups, their
perceptions, needs, and desires. To be effective, messages and
promotional materials should be developed with the assistance of people
toward whom the message is directed.
Employer-based outreach is another avenue for providing targeted
populations with basic information on children's insurance programs.
Working families may not know that their children are potentially
eligible for enrollment in either CHIP or Medicaid. Small businesses,
factories, city and State chambers of commerce and labor unions are
often eager to spread the word about insurance coverage to their
members or community groups with whom they are associated.
A broad array of private and public sector partnerships affords
States the opportunity to extend the CHIP message to many areas through
groups and organizations not traditionally involved in outreach.
Strategic partnerships with media, volunteer organizations, school
personnel, community volunteers, clergy, and agency caseworkers may
lend innovation to an outreach campaign. Churches and faith-based
communities, civic clubs, YMCA, 4-H Clubs, Boy Scouts and Girl Scouts
and senior citizen organizations are additional organizations committed
to providing voluntary assistance for community causes. Private and
public sector partnerships, enhanced by large numbers of volunteers,
strengthen dissemination of program information in conjunction with
State and local level campaigns.
Enrollment Simplification. A major key to successfully
reaching and enrolling uninsured children in CHIP and Medicaid is a
simple application and enrollment process. While it is important to
maintain program integrity (as described in subpart I of this proposed
rule), burdensome applications and enrollment processes have created
significant barriers to successful enrollment. Federal requirements for
application and enrollment in Medicaid and CHIP provide broad
flexibility to States in application and enrollment design. Several
actions currently undertaken by States to encourage enrollment include:
reducing and simplifying the application forms; providing mail-in
applications; creating joint CHIP/Medicaid applications; eliminating
the assets test; allowing self-declaration of income with follow-up
verification by the State; reducing verification and documentation
requirements that go beyond Federal regulation; implementing
presumptive eligibility and 12-month continuous eligibility; allowing
redeterminations by mail; and developing a follow-up process for
families not completing the application. These changes, made in
conjunction with other outreach activities undertaken by States, will
help produce significant increases in enrollment.
When a State selects a separate child health program, the State may
consider new ways of providing families with assistance in filling out
applications. We encourage these States to consider outstationing
eligibility workers at sites that are frequented by families with
children such as schools, child care centers, churches, Head Start
centers, WIC offices, Job Corps sites, GED programs, local Tribal
organizations, and Social Security Field Offices. However, States that
implement Medicaid expansions must follow all Medicaid rules relating
to application assistance and eligibility determination.

[[Page 60893]]

12. Enrollment Assistance and Information Requirements (Sec. 457.110)
Section 2102(c) of the Act requires that State plans include
procedures to inform families of the availability of child health
assistance. In accordance with this provision, we are proposing to
require that a State have procedures to ensure that targeted low-income
children are given information and assistance needed to access program
benefits. Specifically, we propose in Sec. 457.110, that the State plan
describe methods the State will use to make accurate, easily understood
information available to families of targeted low-income children and
provide assistance to them in making informed health care decisions
about their health plans, professionals, and facilities. In order to
assist families of targeted low-income children in making informed
decisions about their health care, we propose in Sec. 457.110(b) to
require that States have a mechanism in place to ensure that the type
of benefits and amount, duration and scope of benefits available under
CHIP and the names and locations of current participating providers are
made available to beneficiaries in a timely manner. This requirement is
consistent with the ``right to information'' disclosure provision of
the President's Consumer Bill of Rights and Responsibilities and is
further discussed in subpart I.
The proposed requirements set forth in this section apply to all
States that are providing child health assistance whether through a
Medicaid expansion or separate child health program under fee-for-
service or managed care delivery systems. Because Medicaid rules apply
to States that implement Medicaid expansion programs, a State that is
operating a Medicaid expansion program that uses managed care delivery
systems would also be required to comply with the requirements of
section 1932(a)(5) of the Act, enacted by section 4701(a)(5) of the
BBA, and the regulations that implement that statutory provision. The
Medicaid statute and regulations govern the kind of information that
must be made available to Medicaid enrollees and potential enrollees
and require that this information, and certain enrollment materials, be
in a format that can be easily understood by the individuals to whom it
is directed.
We propose to require that materials be made available to
applicants and beneficiaries in easily understood language and format.
The State should consider the special needs of those who, for example,
are visually impaired or have limited reading proficiency, and the
language barriers of those who may use the information. A State may
overcome language barriers by establishing a methodology for
determining the prevalent language or languages in a geographic area
and making information available in the languages that prevail
throughout the State or in limited geographic areas where appropriate.
A State may also overcome language barriers by making translation
services available to enrollees and potential enrollees. In any case,
the State should provide instructions to enrollees and potential
enrollees on how to obtain information in the appropriate language or
how to access translation services. While we encourage States to apply
these principles in outreach, this provision is specifically designed
to provide information to targeted low-income children once they have
enrolled in CHIP.
In addition to the benefit and provider information that a State
must make available, other basic information should be made available
to families of eligible targeted low-income children. This information
could include procedures for obtaining services, including
authorization requirements; the extent to which after-hours and
emergency coverage are provided; cost sharing, if any; the rights and
responsibilities of enrollees; complaint, grievance, and fair hearing
procedures; any appeal rights that the State chooses to make available
to providers; with respect to managed care organizations (MCOs) and
health care facilities, their licensure, certification, and
accreditation status; and, with respect to health professionals,
information that includes, but is not limited to, education and Board
certification and recertification.
A State that delivers services through a managed care delivery
system should consider making additional information available to
families of targeted low-income children. This additional information
may include any restrictions on the enrollee's freedom of choice among
network providers; policy on referrals for specialty care and for other
services not furnished by the enrollee's primary care provider; the
extent to which enrollees may obtain services from out-of-network
providers; and any benefits to which they may be entitled under the
program, but that are not covered under the MCO contract and specific
instructions on where and how to obtain those benefits.
13. Public Involvement in Program Development (Sec. 457.120)
States are required under section 2107(c) of the Act to include in
the State plan the process that the State used to accomplish public
involvement in the design and implementation of the plan and the method
to ensure ongoing public involvement. We would implement this provision
at Sec. 457.120. Beneficiaries, providers, and interested groups and
organizations can provide valuable input in developing a plan and
insight into the successes and challenges faced by a State during
implementation and throughout the operation of the program. Experience
with section 1115 demonstrations and other Medicaid programs
demonstrates the benefit of early consultation in identifying and
resolving issues. States should provide for participation from
organizations and groups such as hospitals, community health centers,
and other providers, beneficiaries, and advocacy groups. States may
ensure such involvement through a wide variety of approaches. For
instance, to encourage public involvement, States can--
Hold periodic public hearings to provide a forum for
comments when developing or implementing their plans;
Establish a child health commission or a consumer advisory
committee responsible for soliciting public opinion about the State
plan;
Publish notices in generally circulated newspapers
advertising State plan development meetings so the public can provide
input; or
Create a mechanism enabling the public to receive copies
of working proposals in order to provide comments to the State.
States may use methods other than those listed above. In fact,
States may use any process for public input that affords interested
parties the opportunity to learn about the State plan and allow for
public input in all phases of the program.
14. Provision of child health assistance to American Indian and Alaska
Native children (Sec. 457.125)
Section 2102(b)(3)(D) of the Act requires a State to include in its
plan a description of procedures to be used to ensure the provision of
child health assistance to American Indian or Alaska Native children.
We believe that a State cannot meet the requirement for ensuring the
provision of child health assistance to American Indian or Alaska
Native children without consultation with Tribes and Tribal
organizations. Therefore, we are requesting in

[[Page 60894]]

457.125(a) that the State officials responsible for CHIP consult with
Federally recognized Tribes and other Indian Tribes and organizations
in the State (such as regional Indian health boards, urban Indian
health organizations, non-Federally recognized Tribes, and units of the
Indian Health Service) on development and implementation of the
procedures used to ensure the provision of child health assistance to
American Indian or Alaska Native children. This request is consistent
with the February 24, 1998 letter to State Officials addressing
consultation with Tribes and Tribal organizations.
The Federal government and the governments of American Indians and
Alaska Natives (AI/AN or Indian people) have a ``government-to-
government'' relationship based on the U.S. Constitution, treaties,
Federal statutes, court decisions, and Executive Branch policies. This
special relationship also constitutes a trust relationship between
these governments. Certain benefits provided to Indian people through
Federally enacted programs flow from this trust relationship. These
benefits are not based upon race, but rather, are derived from the
government-to-government relationship. A vital component of this
relationship is consultation between the Federal and tribal
governments. Increasingly, this special relationship has emphasized
self-determination for Indian people and meaningful involvement by
Indian people in Federal decision making (consultation) where such
decisions affect Indian people, either because of their status as
Indian people or otherwise. In cases where the government-to-government
relationship does not exist, as with urban Indian centers, Inter-tribal
organizations, State recognized tribal groups, and other Indian
organizations, we nevertheless encourage States to engage in
consultation.
Consultation is an enhanced form of communication which emphasizes
trust, respect and shared responsibility. It is an open and free
exchange of information and opinion among parties which leads to mutual
understanding and comprehension. Consultation is integral to a
deliberative process that results in effective collaboration and
informed decision making. We encourage States, in addition to
consulting with Federally recognized Tribes, to consult with other
Indian Tribes and organizations before taking actions that affect these
governments or the Indian people residing within the State.
In consulting with tribes and tribal organizations regarding the
procedures to ensure provision of child health assistance, State might
want to consider the following:
Reimbursing facilities that serve Indian populations,
including tribal and urban programs, for CHIP covered services at
higher rates than other facilities to assure access to adequate
services.
Improving enrollment procedures for AI/AN children by
placing outstation eligibility workers in the IHS, tribal, and urban
facilities, by developing culturally appropriate education materials
for enrollment of AI/AN children and by using tribal and community
resources to increase eligibility outreach.
We encourage States to consult with Tribes and Indian organizations
throughout the process of developing and implementing their State
plans, outreach strategies, and other policies and procedures. These
are matters of great interest to Tribes and others in the Indian health
community and on which they have significant expertise and insight.
We propose in Sec. 457.125(b) that HCFA will not approve a State
plan that imposes cost sharing on AI/AN children. We believe that the
imposition of cost sharing on children in AI/AN families may impact the
State's ability to ensure coverage for this group as required under
section 2102(b)(3)(D) of the Act. Our rationale for exempting AI/AN
children from cost sharing is further discussed in the preamble for
proposed Sec. 457.535. This proposed provision would apply to states
that submit State plans for either a separate child health program or a
Medicaid expansion program, including Medicaid expansion programs under
a section 1115 demonstration project.
15. Civil Rights Assurance (Sec. 457.130)
In Sec. 457.130, we propose to require the State to provide an
assurance that the State plan will be conducted in compliance with all
civil rights requirements. This assurance is necessary for all programs
involving continuing Federal financial assistance in accordance with 45
CFR 80.4 and 84.5. These civil rights requirements include title VI of
the Civil Rights Act of 1964, title II of the Americans with
Disabilities Act of 1990, section 504 of the Rehabilitation Act of
1973, the Age Discrimination Act of 1975 and 45 CFR part 80, part 84
and part 91 and 28 CFR part 35.
16. Assurance of Compliance with Other Provisions (Sec. 457.135)
In accordance with section 2107(e) of the Act, we propose in
Sec. 457.135 to require that the State plan include an assurance that
the State will comply under title XXI with the following provisions of
titles XIX and XI of the Social Security Act:
Section 1902(a)(4)(C) (relating to conflict of interest
standards).
Paragraphs (2), (16) and (17) of section 1903(i) (relating
to limitations on payment).
Section 1903(w) (relating to limitations on provider
donations and taxes).
Section 1132 (relating to periods within which claims must
be filed).
We note that section 2107(e)(2)(A) of the Act provides that section
1115 the of Act, pertaining to research and demonstration waivers,
applies to title XXI. This provision grants the Secretary the same
section 1115 waiver authority in title XXI programs as in title XIX
programs. Title XXI provides a broad range of options to allow States
maximum flexibility in designing the program that best meets the needs
of their children. We have carefully considered the extent to which
waivers of both title XIX and title XXI provisions should be granted
under CHIP.
While the law permits the Secretary to use section 1115 authority
to waive provisions of title XXI in order to pursue research and
demonstration projects, we do not believe it would be reasonable to
exercise this authority before States have experience in operating
their new title XXI programs and can effectively design and monitor the
results of demonstration proposals. In addition, we do not yet have
sufficient experience in the operation of CHIP to review and evaluate
the merits of a proposal to waive title XXI provisions. Therefore, we
would consider a section 1115 demonstration proposal for waiver of
title XXI provisions only after a State has had at least one year of
CHIP experience and has conducted an evaluation of that experience. We
are inviting comments on the best approach to considering section 1115
waivers of title XXI provisions.
Because both the Federal government and the States have substantial
experience in administering title XIX, we believe that we are in a
position to consider and grant waivers of title XIX provisions even
when the demonstration project involves the CHIP-related enhanced
match. We would consider a request for section 1115 waivers of title
XIX provisions

[[Page 60895]]

applicable to Medicaid expansion programs without any additional
experience with the program. We would require, however, that proposals
be consistent with what would be allowable in a separate child health
program in order to be approvable. We have approved waiver requests for
three States. For example, we granted Missouri a waiver of title XIX
requirements to provide non-emergency medical transportation because
those services would not have been required under a title XXI benefit
package. We have granted waivers for Missouri, New Mexico, and
Wisconsin to waive title XIX cost sharing limitations to the extent
that cost sharing is consistent with limitations of title XXI.
States that submit section 1115 research and demonstration
proposals of Medicaid laws and requirements must meet the existing
section 1115 requirements, including requirements for research and
evaluation design. To the extent that title XIX funds could be utilized
to implement the demonstration, it would be necessary to negotiate
budget neutrality. A State that wishes to have a section 1115
demonstration proposal considered must submit a full section 1115
application in addition to a title XXI State plan or plan amendment
request that indicates that the State intends to implement title XXI
through an approved Medicaid demonstration project. The State plan or
plan amendment must describe the applicable Medicaid requirements that
will be waived if the section 1115 demonstration project is approved.
Although a 90-day review period applies to CHIP State plans, the
90-day review period does not apply to section 1115 demonstration
requests. Section 1115 does not impose any restrictions on review of
waiver applications. While the President has committed to treat
requests for waivers expeditiously, the complexity of waiver proposals
under Medicaid and CHIP means that a 90-day review period may not be
sufficient.
To the extent that a proposed title XXI State plan or plan
amendment depends upon section 1115 demonstration authority (waivers)
which will take longer than 90 days for HCFA to approve or otherwise
act on, HCFA may not be able to approve the proposed title XXI
submission within 90 days. In such a circumstance, HCFA will advise the
State that additional time will be required to review the waiver
request. In addition, HCFA will ask the State for additional
information on whether a final determination on the title XXI
submission is required before approval of the waiver request, and how
the State will implement the title XXI submission absent approved
waivers. If the State does not provide information about implementation
absent approved waivers, then the 90-day review period will not resume
and HCFA will not proceed to final determination of the title XXI
submission before acting on the related waiver request. If the State
responds with information on how the submission will be implemented and
implementation continues to rely upon waivers that have not yet been
granted, then the 90-day review period will resume and HCFA may be
required to disapprove the title XXI submission.
17. Budget (Sec. 457.140)
Section 2107(d) of the Act specifies that a State plan must include
a description of the budget, updated periodically as necessary,
including details on the planned use of funds and the source(s) of the
non-Federal share of plan expenditures, including any requirements for
cost-sharing by beneficiaries. We are proposing in Sec. 457.140(a) that
the State plan must include a budget that describes both planned use of
funds and sources of the non-Federal share of plan expenditures for a
3-year period. An amended budget included in a State plan amendment
must also include the required description for a 3-year period.
We are proposing that the planned use of funds include the
projected amount to be spent on health services, the projected amount
to be spent on administrative costs and assumptions on which the budget
is based. The amount spent on health services would be the cost of the
benefits provided to beneficiaries, such as payments to providers or
health plans. Administrative costs include the costs specified in
section 2105(a)(2) of the Act, examples of which are costs associated
with outreach, child health initiatives and evaluation. We propose that
assumptions on which the budget is based must include the cost per
child and expected enrollment. We realize that a State must base the
required information on projections. However, we believe it is
important to have this information to ensure the State has adequately
planned for its program. In particular, we want to ensure that the
State understands the limits placed on administrative expenditures and
that the plan is being developed in an ``effective and efficient''
manner.
Although section 2107(d) does not specifically require States to
submit a 3-year budget, it provides a sufficient authority for our
proposed requirement. We propose to require a 3-year budget for the
initial State plan because States have up to 3 years to spend each
annual allotment. A 3-year budget is useful to show if States are
planning to use their unused allotments in the succeeding 2 fiscal
years. In developing this policy, we also considered the budget
requirements for Medicaid programs. Section 1115 demonstration projects
require a 5-year budget and section 1915(b) waivers require a 2-year
budget.
In accordance with section 2107(d), we are requiring in
Sec. 457.140(b) that the budget in the State plan describe the
projected source of non-Federal plan expenditures, including any
requirements for cost sharing by beneficiaries. Under Sec. 457.224 of
the March 4, 1999 proposed regulation concerning program allotments and
payments to States (64 FR 10412), FFP would not be available for cost
sharing amounts such as enrollment fees, premiums, deductibles,
coinsurance, copayments, or similar charges as required by section
2105(c)(5). To ensure this result, the amount of expenditures under the
State plan must be reduced by the amount of any premiums and other
cost-sharing received by the State.
HCFA's approval of a State plan, including amendments, is
contingent on the State's use of permissible funding sources for the
non-Federal share of plan expenditures.
Furthermore, we reserve the right to disallow funds, to the extent
we find that the State is using impermissible funding for the non-
Federal share of plan expenditures under a previously approved plan.
Any revenues received by a State through contribution(s) from or the
imposition of tax(es) on health care providers or related entities,
regardless of whether or not the State uses the contribution for
Federal matching purposes, is subject to the statutory provisions of
1903(w) of the Act.
18. HCFA Review of State Plan Material (Sec. 457.150)
Section 2106 of the Act provides the Secretary of the Department of
Health and Human Services (DHHS) with the authority to approve and
disapprove State plans and plan amendments. The authority vested in the
Secretary under title XXI has been delegated to the Administrator of
HCFA with the limitation that no State plan or plan amendment will be
disapproved without consultation and discussion by the Administrator
with the Secretary.
Therefore, in Sec. 457.150, we propose to specify that HCFA
reviews, approves and disapproves all State plans and plan amendments.
The Center for Medicaid and State Operations within HCFA has

[[Page 60896]]

the primary responsibility for administering the Federal aspects of
title XXI. We will continue to work jointly with the Health Resources
and Services Administration (HRSA) to implement and monitor the new
program as a part of the Department's overall strategy to support
coordination with other Federal and State health programs in providing
outreach to uninsured children and promoting coordination of care and
other public health interventions. At this time, State plans and plan
amendments are reviewed by a team of DHHS staff, including HRSA staff,
who must concur on approval of the plan. Departmental concurrence is an
internal policy that is subject to change.
We base approval or disapproval of State plans on relevant Federal
statutes, including title XXI and title XIX, regulations, and
guidelines issued by HCFA. We published and will continue to publish
guidelines in the format of State Health Official letters and Questions
and Answers, which may be accessed through the website.
Section 2106 does not allow the Secretary to partially approve or
disapprove a State plan or plan amendment. Thus, at Sec. 457.150(b) we
propose that HCFA approves or disapproves the State plan or plan
amendment only in its entirety. For example, if a State submitted one
proposal to implement a combination program, we would not approve the
Medicaid expansion portion and disapprove the separate program portion.
The proposal would only be considered as a whole. If a State wants HCFA
to consider portions of a proposal separately, then the State must
expressly divide the proposal into distinct and separate proposed State
plan or State plan amendment submissions. For example, a State could
receive approval for a Medicaid expansion program described in the
State plan and then receive approval to turn the program into a
combination program as described in a plan amendment. As appropriate
and feasible, States may withdraw portions of a pending State plan or
plan amendment that may lead to delay in its approval or disapproval of
the program.
In Sec. 457.150(d), we propose to designate an official to receive
the initial submission of a State plan. By designating one official to
receive all initial State plans, we eliminate any confusion of where to
send the first submission. The identity of this individual is posted on
HCFA's website. If this designated official is unavailable, the review
period is started and counted as if the designated official was in the
office.
In Sec. 457.150(e), we propose to designate an individual to
coordinate HCFA's review for each State that submits a State plan. We
will notify the State of the identity of the designated individual in
the first correspondence from HCFA relating to the plan, such as a
formal request for additional information. We will also notify the
State at any time there is a change in the designated individual. If
the designated individual for a State is unavailable during regular
business hours, another HCFA employee will act in place of the
designated individual to ensure that the review period is counted as if
the designated individual was in the office. We believe that this
procedure will simplify administration of the program.
19. Notice and Timing of HCFA Action on State Plan Material
(Sec. 457.160)
In Sec. 457.160(a), we propose that HCFA will send written
notification of the approval or disapproval of a State plan or plan
amendment. While section 2106(c)(2) only requires that written
notification be sent for disapproval and requests for additional
information, we are proposing to require that written notification be
sent for approval as well. This rule is consistent with the Medicaid
approval process during which HCFA sends written notices of approval of
Medicaid State plan amendments and 1915 (b) and (c) waivers.
We will closely track the review period, which begins on the first
full day following receipt of the initial State plan by the designated
official or the State plan amendment by the designated individual. In
Sec. 457.160(b)(2), we propose that the State plan or plan amendment be
considered received on the day the designated official or individual,
as determined in Sec. 457.150 (d) and (e), receives an electronic, fax
or hard copy of the complete plan. The complete plan includes any
referenced documentation, such as attachments, benefits plans or
actuarial analyses. If the designated official or individual receives a
State plan without the referenced documentation, then the review period
begins not on the first full day following receipt of the initial,
incomplete plan, but rather on the first full day after the designated
individual receives the documentation. We strongly encourage States to
submit their State plans or plan amendments in electronic format (via
disk or e-mail) to facilitate its distribution to DHHS' reviewing
components. We request that the State submit the State plan and plan
amendments to both the HCFA central office and the appropriate regional
office at the same time. If the State submits the State plan or plan
amendment in hard copy, we request that the State submit twenty (20)
copies to the central office and three (3) copies to their regional
office. If the State submits the State plan or plan amendment
electronically, then the State should send three (3) hard copies to the
central office and one (1) hard copy to their regional office. We also
request that States include the name and telephone number of their
primary contact person for CHIP (if different from the information
required in Sec. 457.40(c)) in the State's transmittal letter to help
ensure an early and ongoing dialogue on the submission.
As required by section 2106(c)(2), a State plan or plan amendment
will be considered approved unless HCFA, within 90 days after receipt
of the State plan or plan amendment, sends the State written notice of
disapproval or written notice of any additional information it needs in
order to make a final determination. The Act does not specify calendar
days or business days. We propose to measure the 90-day review period
using calendar days. The 90-day review period would not expire until 12
a.m. eastern time on the 91st countable calendar day after receipt, as
calculated using the rules set forth in the proposed regulation and
discussed below (except that the 90-day period cannot stop or end on a
non-business day).
HCFA's formal request for additional information may include a
description of specific issues that need clarification, an outline of
additional information required, or a request for resolution of any
inconsistencies of the plan with title XXI provisions. We will make a
formal request for information only when the State may need a
significant amount of time to resolve issues or develop required
information. In order to ensure that additional information responding
to HCFA's formal requests will be sufficient to restart the approval
process, we encourage States to work with HCFA in developing any
responses.
In Sec. 457.160(b)(3), we propose that if HCFA provides written
notice requesting additional information, the 90-day review period is
stopped on the day HCFA sends the written request for additional
information. HCFA will not stop a review period on a weekend or a
Federal holiday. This written request will be considered sent on the
day that the letter is signed and dated except if the day is a weekend
or Federal holiday, in which case the review period will stop on the
next business day. We will

[[Page 60897]]

attempt to ensure that the State receives the letter on that same day,
through some means of electronic transmission, and will try to confirm
receipt by telephone contact during normal business hours. We propose
that the review period will resume on the next calendar day after the
complete additional information is received by the designated
individual, unless the State's response is received after 5 p.m.
eastern time on a day prior to a non-business day or any time on a non-
business day, in which case the review period will resume on the
following business day. For example, if the formal request for
information is sent on day 45, the review will begin again at day 46 on
the first full business day following receipt of the requested
information by the designated individual. If the formal request for
information is sent on day 45 and the State's response is received at 6
p.m. eastern time on a Friday, then day 46 will be the following Monday
(assuming it is not a holiday). We propose in Sec. 457.160(b)(4) that
the 90-day review period cannot stop or end on a non-business day. HCFA
will not stop a review period on a weekend or holiday. If the 90th day
of a review period is scheduled to be on a weekend or holiday, then the
90th day will be the following business day. Additionally, in
Sec. 457.160(b)(5), we propose that the 90-day review period may be
stopped as many times as necessary to obtain the necessary information
for making a final decision whether to approve the State plan or plan
amendment.
In developing our policy for the review period, we considered
applying the review periods associated with the review of title XIX
State plan amendments (SPA) and 1915 (b) and (c) waiver requests. In
the review of a SPA and 1915 (b) and (c) waiver request, the 90-day
clock begins on the day of receipt of the SPA or waiver request and
ends 90 days later and only business days are counted. The 90-day clock
can be stopped only once by a written request for additional
information. A new 90-day period begins on the day the requested
information is received.
We are not proposing to use the same review period policies under
title XXI, as we believe the proposed process will more effectively
implement title XXI objectives because it will be speedier and more
flexible. Rather than having a 90-day clock that restarts at the
beginning when additional information is requested and received, we
propose a clock that consists of only 90 calendar days and resumes on
the day additional information was requested, when that information is
received. The proposed time frame allows States ample opportunity to
comply with the requirements of this new program by allowing the review
period to be stopped as many times as necessary rather than only once.
We are proposing that the review period be started (or restarted) on
the first full day following receipt of the plan (or additional
information) in order to allow us the fullest amount of time for
review. Furthermore, our proposal to resume the review period on the
following business day if the response is received after 5 p.m. eastern
time on a day prior to a non-business day would allow us maximum review
time. This provision and the provision that the review period cannot
end on a non-business day safeguard against a plan becoming
automatically approved on a non-business day. While we are committed to
expedient review, we believe it would not be reasonable to count non-
business days on which we could not have reasonably taken action.
We permit and encourage informal discussion between the State and
HCFA during the review period. We may informally request additional
information through meetings or telephone contact, or in writing.
Because an informal request does not stop the 90-day approval time
frame, HCFA usually makes such a request only when HCFA has concerns
that the State could address in a timely manner through clarification
of information already contained in the plan. It is important that
States respond as quickly as possible to informal requests for
clarification because these requests do not stop the review period.
20. Withdrawal Process (Sec. 457.170)
In Sec. 457.170, we propose to allow a State to withdraw its State
plan during the review process by providing written notice to HCFA of
the withdrawal. This process is consistent with the process for
withdrawal of a Medicaid State plan amendment.
21. Administrative and Judicial Review of Action on State Plan Material
(Sec. 457.190)
A State dissatisfied with the Administrator's action on State plan
material has a right to administrative review. In Sec. 457.190(a), we
propose a procedure for administrative review under the authority of
section 2107(e)(2)(B) of the Act. Specifically, we would require that
any State dissatisfied with the Administrator's action on State plan
material under Sec. 457.150 may, within 60 days after receipt of the
notice of final determination provided under Sec. 457.160(a), request
that the Administrator reconsider whether the State plan or plan
amendment conforms with the requirements for approval. This procedure
is consistent with the procedure for administrative review in Medicaid.
Additionally, we propose that the procedures for hearings and judicial
review be the same procedures used in Medicaid which are set forth in
regulations at part 430, subpart D. We propose to use the same
procedures that are used in Medicaid because the infrastructure
supporting these procedures is already in place and well known. We
believe it is important for a State to be familiar with the process for
requesting reconsideration of a HCFA action in order for that State to
have full opportunity to dispute the action. In addition, we propose
that we will not delay the denial of Federal funds, if required by the
Administrator's original determination, pending a hearing decision. If
the Administrator determines that the original decision was incorrect,
we pay the State a lump sum equal to any funds incorrectly denied.

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

1. Basis, Scope, and Applicability (Sec. 457.300)
This subpart interprets and implements section 2102(b) of the Act,
which relates to eligibility standards and methodologies; section
2105(c)(6)(B), which precludes payment for expenditures for child
health assistance provided to children eligible for coverage under
other Federal health care programs other than programs operated or
financed by the Indian Health Service; and section 2110(b), which
defines the term ``targeted low-income child.'' This subpart sets forth
the requirements relating to eligibility standards and to screening,
application and enrollment procedures. The requirements of this subpart
apply to a separate child health program and, with respect to the
definition of targeted low-income child only, a Medicaid expansion
program.
2. Definitions and Use of Terms (Sec. 457.301)
This section includes the definitions and terms used in this
subpart. Because of the unique Federal-State relationship that is the
basis for this program and in keeping with our commitment to State
flexibility, we determined that many terms should be left to the States
to define. For example, we did not define the terms ``family'' or
``income'' as there is a great deal of variation among States. States
have the option to count either

[[Page 60898]]

gross or net income when making eligibility determinations; and the
term family can be defined any number of ways, ranging from only the
individual child to including parents, grandparents or other non-
related guardians. States have discretion in making these
determinations.
The statutory phrase ``public agency in the State'' is not
restricted to State government agencies, but would include other public
agencies, such as local agencies in the State. Therefore, we propose to
define ``public agency'' as a State, county, city or other type of
municipal agency, including a public school district, transportation
district, irrigation district, or any other type of public entity. Such
an interpretation is consistent with the use of the term under
Sec. 433.51 of the Medicaid regulations, which includes State and local
governmental units, as well as Indian tribes, as public agencies. We
are proposing to define the term ``employment with a public agency'' as
employment either directly or with an entity under a contract with a
public agency. This term includes both direct and indirect employment
because we do not wish to influence or restrict the organizational
flexibility of State and local governmental units.
We would define the term ``State health benefits plan'' as a plan
that is offered or organized by the State government on behalf of State
employees or other public agency employees within the State. For
example, if a local government, such as a county or a city, has its own
insurance plan that is separate from the State employee plan, the
children of that entity's employees could be eligible for CHIP as long
as they are uninsured and meet all other eligibility requirements under
the plan. The term does not include a separately run county, city, or
other public agency plan or a plan that provides coverage only for a
specific type of care, such as dental or vision care. Our definition
parallels the definition in section 2791(d)(8) of the Public Health
Service Act, which refers to plans ``established or maintained for its
employees,'' except that we would limit the term to a plan under which
an actual benefit in the form of a more than nominal premium subsidy is
available for coverage of a dependent child. In the absence of a more
than nominal premium subsidy, we would not consider the plan to be a
``benefits plan'' with respect to the child, because no benefit would
be extended by the State for that child.
3. State Plan Provisions (Sec. 457.305)
In accordance with the requirements of section 2102(b)(1)(A) of the
Act, we propose to require that the State plan include a description of
the eligibility standards under the State plan.
4. Targeted Low-income Child (Sec. 457.310)
Section 2110(b) of the Act defines a targeted low-income child. In
accordance with this section, we have defined a targeted low-income
child as a child who meets the eligibility requirements established in
the State plan and certain other statutory conditions to be a targeted
low-income child. At Sec. 457.310(b), we set forth proposed standards
for targeted low-income children that relate to financial need,
eligibility for other coverage including coverage under a State health
benefits plan. In addition, we set forth exclusions from the category
of low-income children.
With regard to financial need, we propose that a child who resides
in a State with a Medicaid applicable income level, must have: (1)
Family income at or below 200 percent of the Federal poverty line; or
(2) family income that either exceeds the Medicaid applicable income
level but by not more than 50 percentage points or does not exceed the
Medicaid applicable income level determined as of June 1, 1997. Section
2110(b)(1)(B)(ii)(II) of the Act refers to the term Medicaid applicable
income level in the definition of targeted low-income child. As
specified in a technical amendment passed by Congress, the March 31,
1997 date from section 2110(b)(4), defining Medicaid applicable income
level, was replaced with the June 1, 1997 date in the text of this
proposed regulation.
With regard to other coverage, we propose that a targeted low-
income child must not be eligible for Medicaid (determined either
through the Medicaid application process or the screening process
discussed later in this preamble); or covered under a group health plan
or under health insurance coverage, unless the health insurance
coverage has been in operation since before July 1, 1997, and is
administered by a State that receives no Federal funds for the
program's operation. However, we would not consider a child to be
covered under a group health plan if the child did not have reasonable
access to care under that plan. For example, if a child is covered by a
health maintenance organization in another State through the employer
of an absent parent and cannot get treatment (other than emergency
care) in his State of residence, we would not consider the child to
have health insurance coverage for purposes of eligibility in the State
of residency.
Section 2110(b)(3) allows low-income children who have insurance
coverage under a State program operating since before July 1, 1997
without Federal funds to be considered targeted low-income children.
This rule applies to programs that are State-operated, that is,
administered by the State in some respect. Children in such programs
continuously operating since June 30, 1997 would not be precluded from
being considered as targeted low-income children, but would have to
meet other applicable eligibility requirements.
In the State plan review process, we have been ask

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A99-28693. Public record. Not legal advice.