[Federal Register Volume 64, Number 42 (Thursday, March 4, 1999)]
[Proposed Rules]
[Pages 10412-10438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4933]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 447, 457, and 45 CFR Parts 92 and 95

[HCFA-2114-P]
RIN 0938-AI65


State Child Health; State Children's Health Insurance Program 
Allotments and Payments to States

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth the methodologies and procedures 
to determine the Federal fiscal year allotments of Federal funds 
available to individual States, Commonwealths and Territories for the 
new State Children's Health Insurance Program (CHIP) established under 
title XXI of the Social Security Act. This rule also proposes the 
allotment, payment, and grant award process that will be used for the 
States, the Commonwealths and Territories to claim and receive Federal 
financial participation (FFP) for expenditures under the State 
Children's Health Insurance Program and related Medicaid program 
provisions.
    Established by section 4901 of the Balanced Budget Act of 1997 
(Pub. L. 105-33) and amended by technical amendments made by Pub. L. 
105-100, the State Children's Health Insurance Program provides Federal 
matching funds to States to initiate and expand health insurance 
coverage to uninsured, low-income children. Aggregate Federal funding 
is limited to a fixed amount for each Federal fiscal year. This 
aggregate amount is divided into allotments for each State. State 
allotments are determined based on a statutory formula that divides the 
total available appropriation among all States with approved child 
health plans. Once determined, the amount of a State's allotment for a 
fiscal year is available for 3 years.
    We are publishing this proposed rule in accordance with the 
provisions of sections 2104 and 2105 the Act that relate to allotments 
and payments to States under title XXI.

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 May 
3, 1999.

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-2114-P, PO Box 7517, 
Baltimore, MD 21207-0517.
    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 C5-09-27, 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:

Allison Eydt, HCFA Desk Officer, Office of Information and Regulatory 
Affairs, Room 3001, 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: 
Louis Blank, HCFA-2114-P.

FOR FURTHER INFORMATION CONTACT: Richard Strauss, (410) 786-2019

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-2114-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, PO Box

[[Page 10413]]

371954, Pittsburgh, PA 15250-7954. Specify the date of the issue 
requested and enclose a check or money order payable to the 
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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 490l 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 child health assistance to uninsured, low-income children. Child 
health assistance is provided primarily for obtaining health benefits 
coverage through (1) obtaining coverage that meets requirements 
specified in the law 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.
    Under title XXI, funds are appropriated to carry out this basic 
purpose. Section 2104(a) of the Act specifies appropriated amounts for 
each fiscal year to be used to provide allotments to each State. 
Section 2104 of the Act provided for the total amount of funds 
available nationally for each Federal fiscal year and sets forth a 
general methodology to calculate the State specific allotments.
    Section 2105 of the Act requires the Secretary to make payments to 
each State with an approved State child health plan from its available 
allotment equal to a certain percentage (referred to as the enhanced 
Federal medical assistance percentage (EFMAP)) of the State 
expenditures under the plan. These expenditures are primarily for child 
health assistance for targeted low-income children that meet the health 
benefits coverage requirements in section 2103 of the Act. Section 2105 
of the Act authorizes the Secretary to establish a process for making 
payments to States for State expenditures under their title XXI 
programs. Under this section, no more than 10 percent of a State's 
total expenditures may be used for the total costs of: other child 
health assistance for targeted low-income children; health services 
initiatives; outreach; and administrative costs.
    This proposed rule will implement these title XXI State CHIP and 
related title XIX Medicaid program financial provisions, including the 
allotment process, the payment process, financial reporting 
requirements, and the grant award process.

II. Provisions of the Proposed Rule

A. Overview

    Under our proposal, the new regulations for the Children's Health 
Insurance Program would be set forth in regulations at 42 CFR part 457 
subchapter D. We note that some sections and subparts would be reserved 
for regulations currently under development related to other statutory 
requirements of the Children's Health Insurance Program. We intend to 
address these and other statutory requirements in subsequent Federal 
Register documents.
    The overall existing regulations for the Medicaid program 
containing general financial and related provisions were used as a 
model for the Children's Health Insurance Program. In this regard, 
proposed regulations at Secs. 457.200 through 457.238, subpart B, 
mirror existing Medicaid regulations related to program administration 
and conformed to the title XXI program. The most significant inclusion 
in these regulations would be our proposal to set forth proposed 
regulations at Secs. 457.600 through 457.630, subpart F. This subpart 
would specify the methodologies and procedures to determine the Federal 
allotments, and the grant award process that will be used for payment 
to States.
    The proposed organizational format for new part 457, subchapter D 
is as follows:

Subchapter D--Children's Health Insurance Programs (CHIPs)

Part 457--Allotments and Grants to States

Subpart A--[Reserved]

Subpart B--General Administration--Reviews and Audits; Withholding for 
Failure To Comply; Deferral and Disallowance of Claims; Reduction of 
Federal Medical Payments

Sec.

457.200  Program reviews.
457.202   Audits.
457.204   Withholding of payment for failure to comply with Federal 
requirements.
457.206  Administrative appeals under the State CHIP.
457.208  Judicial review.
457.210  Deferral of claims for FFP.
457.212  Disallowance of claims for FFP.
457.216  Treatment of uncashed or canceled (voided State CHIP 
checks).
457.218  Repayment of Federal funds by installments.
457.220  Public funds as the State share of financial participation.
457.222  FFP for equipment.
457.224  FFP: Conditions relating to cost sharing.
457.226  Fiscal policies and accountability.
457.228  Cost allocation.
457.230  FFP for State ADP expenditures.
457.232  Refunding of Federal share of CHIP overpayments to 
providers and referral of allegations of waste, fraud or abuse to 
the Office of Inspector General.
457.234  State plan requirements.
457.236  Audit of records.
457.238  Documentation of payment rates.

Subparts C through E--[Reserved]

Subpart F--Payment to States

457.600  Purpose and basis of this subpart.
457.602  Applicability.
457.606  Conditions for State allotments and Federal payments for a 
fiscal year.
457.608  Process and calculation of State allotments for a fiscal 
year.
457.610  Period of availability for State allotments for a fiscal 
year.
457.614  General payment process.
457.616  Application and tracking of payments against the fiscal 
year allotments.
457.618  Ten percent limit on certain Children's Health Insurance 
Program expenditures
457.622  Rate of FFP for State expenditures.
457.624  Limitations on certain payments for certain expenditures.
457.626  Prevention of duplicate payments.
457.628  Other applicable Federal regulations.
457.630  Grants procedures.

B. Program administration

Subpart B--General Administration--Reviews and Audits; Withholding for 
Failure to Comply; Deferral and Disallowance of Claims; Reduction of 
Federal Medical Payments
    We would add new Secs. 457.200 through 457.234 subpart B that would

[[Page 10414]]

specify the provisions necessary for program administration of the 
State CHIP plan.
1. Program Reviews (Sec. 457.200)
    Section 457.200 would specify that HCFA reviews State and local 
administration of the State CHIP plan in order to determine whether the 
State is complying with the Federal requirements and provisions of its 
plan.
2. Audits (Sec. 457.202)
    The Department's Office of Inspector General (OIG) periodically 
audits State operations. Section 457.202 would specify the purpose of 
these audits, OIG's audit reports, and action that a State agency may 
take on audit exceptions.
3. Withholding of Payment for Failure To Comply With Federal 
Requirements (Sec. 457.204)
    Section 457.204 would specify the basis for withholding payment, 
noncompliance of a State plan and noncompliance practices.
4. Administrative Appeals Under the State CHIP (Sec. 457.206)
    Section 457.206 would specify the three types of disputes that may 
be appealed under the State CHIP.
5. Judicial Review (Sec. 457.208)
    A State dissatisfied with the Administrator's final determination 
approval of plan material or compliance with Federal requirements has a 
right to judicial review. In Sec. 457.208, we would specify the 
procedure for judicial review.
6. Deferral of Claims for FFP (Sec. 457.210)
    Section 457.210 would specify the requirements for deferral for 
payment of a claim or any portion of a claim for FFP. This section 
would also specify that the HCFA Regional Administrator must notify the 
State in writing of a deferral and the State's responsibility.
7. Disallowance of Claims for FFP (Sec. 457.212)
    Section 457.212 would specify when the Regional Administrator or 
Administrator determines that a claim or portion of a claim is not 
allowable the State will be notified of the dissallowance and a right 
for reconsideration. This section would also specify the procedure for 
reviews of disallowances of FFP under CHIP, and implementation of 
reconsideration decisions.
8. Treatment of Uncashed or Canceled (voided) State CHIP Checks 
(Sec. 457.216)
    Section 457.216 would specify the rule to ensure that States refund 
the amount of FFP related to checks not cashed after 180 days or 
canceled (voided) checks, issued by a State or a fiscal agent to CHIP 
payees under title XXI.
9. Repayment of Federal Funds (Sec. 457.218)
    New Sec. 457.218 would set forth the basic conditions when Federal 
payments have been made for claims that are later found to be 
unallowable. This section would specify the repayment schedule, 
quarterly repayment amounts, extended schedule and repayment process. 
It would also specify the process for offsetting of retroactive claims.
10. Public Funds as the State Share of Financial Participation 
(Sec. 457.220)
    Section 457.220 would specify that public funds may be considered 
for the State's share in claiming FFP if they meet the conditions 
specified in this section of the regulations. These public funds may 
also be subject to the limitation on the use of donations and taxes 
that are set forth in Medicaid regulations, which we propose to 
incorporate for purposes of the CHIP in Sec. 457.628 below. HCFA is 
considering whether there is a need to issue additional regulations for 
provider related-donations and health care related-taxes for CHIP.
11. FFP for Equipment (Sec. 457.222)
    Section 457.222 would specify how claims for Federal financial 
participation in the cost of equipment under the State CHIP are 
determined, and the requirements concerning the management and how 
disposition of equipment under the State CHIP Program are prescribed.
12. FFP: Conditions Relating to Cost Sharing (Sec. 457.224)
    New Sec. 457.224 would specify the conditions for which no FFP in 
the State's expenditures for services is available or for which the 
amount of expenditures are reduced related to cost-sharing received by 
the State.
13. Fiscal Policies and Accountability (Sec. 457.226) and Cost 
Allocation (Sec. 457.228)
    Section 457.226 would set forth fiscal policies and accountablity 
for a State that has a CHIP plan. Section 457.228 would require a State 
plan to provide that the single or appropriate State CHIP agency will 
have an approved cost allocation plan on file with the Department.
14. Federal Financial Participation for State ADP Expenditures 
(457.230)
    Section 457.230 would specify that FFP is available for State ADP 
expenditures for the design, development, or installation of mechanized 
claims processing and information retrieval systems and for the 
operation of certain systems. This section would also specify where 
additional HHS regulations and HCFA procedures for implementing these 
regulations are specified.
15. Refunding of Federal Share of CHIP Overpayments to Providers and 
Referral of Allegations of Waste, Fraud or Abuse to the Office of 
Inspector General (Sec. 457.232)
    Section 457.232 would specify how refunding of the Federal share of 
CHIP overpayments to providers will be handled. In addition, this 
section would specify that allegations or indications of waste, fraud 
and abuse with respect to the CHIP program must be referred to the 
Office of Inspector General.
16. State Plan Requirements (Sec. 457.234)
    This section would specify that the State must provide that the 
requirements in this subpart are met.
17. Audits of Records (Sec. 457.236) and Documentation of Payment Rates 
(Sec. 457.238)
    Sections 457.236 and 457.238 would specify that the CHIP agency 
must assure appropriate audit of records, and maintain documentation of 
payment rates and make it available to HHS.

C. Allotment Process

    We would add new Secs. 457.600 through 457.632, subpart F, that 
would implement the provisions of section 2104 of the Act, relating to 
the process for establishing the national total amounts available and 
the State specific allotments for a fiscal year, and section 2105 of 
the Act, relating to the process for making payments to States from 
their allotments. We would also add a new section on Medicaid 
presumptive eligibility at Sec. 447.88 to subpart A, as discussed 
below.
1. Purpose, Basis and Applicability of This Part (Secs. 457.600 and 
457.602)
    Section 457.600 specifies the purpose and basis of this new part.
    Section 457.602 will specify that this subpart applies to the 50 
States, the District of Columbia, and the Commonwealths and 
Territories.

[[Page 10415]]

2. Conditions for State Allotments for a Fiscal Year and Payments 
(Sec. 457.606)
    In Sec. 457.606, we specify the conditions necessary in order for a 
State to receive an allotment for a fiscal year and Federal payments 
for allowable State expenditures under its State child health plan. 
Specifically, a State will receive an allotment for a fiscal year only 
if HCFA has approved its State child health plan by the end of the 
fiscal year, and Federal payments are available only for the State's 
allowable expenditures under the approved State child health plan at an 
enhanced Federal medical assistance percentage. States could be at risk 
for expenditures made under a State child health plan that was 
submitted, but not yet approved.
    Public Law 105-174, enacted on May 1, 1998, provides that if a 
State child health plan is approved by HCFA on or after October 1, 
1998, and before October 1, 1999, the plan must be treated as having 
been approved for both FY 1998 and FY 1999. Thus, for example, if a 
State submits its initial child health plan during FY 1999 and the plan 
is approved in FY 1999, the State will receive a CHIP fiscal year 
allotment for both FY 1998 and FY 1999. However, a State's allotment 
for a fiscal year may only be used for CHIP and/or CHIP-related 
Medicaid expenditures that are allowable under the approved State child 
health plan or the Medicaid State plan. FFP would not be available for 
expenditures made in and claimed for periods prior to the effective 
date of the approved State child health plan or the Medicaid State 
plan. Sec. 457.606 specifies the conditions contained in Public Law 
105-174 relating to approval of State child health plans for FYs 1998 
and 1999.
3. Process and Calculation of Allotments for a Fiscal Year 
(Sec. 457.608)
    We specify in Sec. 457.608 the provisions for determining the 
amounts of State allotments for a fiscal year. The total amount of the 
Federal funds available for the purpose of funding States' Title XXI 
programs is limited for each fiscal year nationally, and the statute 
provides a basis for determining State-specific allotments of this 
national total amount. There are two determinations involved in the 
overall allotment process. In the first determination, the total 
amounts available for allotment to the States, the District of 
Columbia, and the Commonwealths and Territories for a fiscal year are 
established. The second determination potentially involves three State 
specific allotment determinations by the Secretary for a fiscal year: 
the reserved allotment; the final allotment; and the redistribution of 
the amounts of unused fiscal year allotments from States that have not 
expended all of the amount of that fiscal year's allotment, to States 
that have fully expended the amount of their allotments for that fiscal 
year.
    Section 457.608 specifies the methodology and formula for 
calculating the total amount available nationally for allotment to 
States and the District of Columbia for a fiscal year. Section 2104(a) 
of the Act specifies the total appropriated amount available nationally 
for allotment to each State and the District of Columbia with a State 
child health plan approved under this title based on the formula 
specified in section 2104(b)(1) of the Act. The total appropriations 
for each fiscal year, representing the total amounts available 
nationally for allotment to States are: $4.295 billion for FY 1998; 
$4.275 billion for fiscal years 1999 through 2001; $3.150 billion for 
fiscal years 2002 through 2004; $4.050 billion for fiscal years 2005 
and 2006; and $5 billion for FY 2007. The total amount available 
nationally for allotment for each fiscal year is determined by 
subtracting certain amounts in a specified order, as specified in 
statute, from the total appropriation for all States for a given fiscal 
year. The example below illustrates the methodology used for 
calculating the total amount available nationally for allotment to 
States for FY 1998.

Total Allotment Available for FY 1998 for All States

Formula: ATA = 
S2104(a)-T2104(c)-D4921-D4922


ATA = National total amount available for allotment to all 
States and the District of Columbia for the fiscal year.
S2104(a) = Total appropriation for the fiscal year specified 
in section 2104(a) of the Act. Under section 2104(a)(1) of the Act for 
FY 1998, this is $4,295,000,000.
T2104(c) = Total allotment amount for a fiscal year 
available for allotment to the Commonwealths and Territories; 
determined under section 2104(c) of the Act as 0.25 percent of the 
total appropriation for the fiscal year. For FY 1998, this is: .0025 
x  $4,295,000,000 = $10,737,500
D4921 = Amount of total grant for children with Type I 
Diabetes under section 4921 of Pub. L. 105-33. This is $30,000,000 for 
each of fiscal years 1998 through 2002.
D4922 = Amount of total grant for diabetes programs for 
Indians under section 4922 of Pub. L. 105-33. This is $30,000,000 for 
each of fiscal years 1998 through 2002.

In accordance with the above formula, the total amount available for 
allotment to the 50 States and the District of Columbia for fiscal year 
1998 is $4,224,262,500, determined as follows:

ATA = 
S2104(a)-T2104(c)-D4921-D4922
 $4,224,262,500 = $4,295,000,000 -$10,737,500 -$30,000,000 -$30,000,000
4. Individual State Allotments to the 50 States and District of 
Columbia
    Section 2104(b) of the Act provides for allotments from the total 
amount available nationally to the 50 States and the District of 
Columbia. For fiscal years 1998 through 2000, each State with an 
approved State child health plan will receive an allotment based on two 
factors for the fiscal year: the number of children and the State cost 
factor.
    Section 2104(b)(2) of the Act specifies that the number of children 
used in determining a State's allotment for a fiscal year is a 
determination of the number of low-income children (and of low income 
children who have no health insurance coverage) for a State for a 
fiscal year made on the basis of the arithmetic average of the number 
of such children, as reported and defined in the 3 most recent March 
supplements to the Current Population Survey (CPS) of the Bureau of the 
Census before the beginning of the fiscal year.
    For fiscal years 1998 through 2000 the number of children factor 
used in calculating a State's allotment for a fiscal year is based on 
each State's total number of low-income children with no health 
insurance coverage. For fiscal year 2001, the number of children factor 
is the sum of: (1) 75 percent of the number of low-income children with 
no health insurance coverage; and (2) 25 percent of the number of low-
income children in the State. For each succeeding fiscal year after 
2001, the number of children factor is the sum of: (1) 50 percent of 
the number of low-income children with no health insurance coverage; 
and (2) 50 percent of the number of low-income children in the State.
    Section 2104(b)(1)(A)(ii) and (b)(3) of the Act specifies that the 
State cost factor used in determining a State's allotment refers to 
geographic variations in State health costs and is based on the average 
of the annual wages per employee for the State or the District of 
Columbia, or for all States and the District of Columbia, for employees 
in

[[Page 10416]]

the health services industry (although SIC Code 8000 is referenced in 
the statute, the Bureau of Labor and Statistics is using the more 
general SIC code 80) as reported by the Bureau of Labor Statistics of 
the Department of Labor for each of the most recent 3 years before the 
beginning of the fiscal year involved.
    As specified in the statute, the sources of the number of children 
and the annual average wages for employees in the health services 
industry are the Bureau of the Census and the Bureau of Labor 
Statistics, respectively. Both of the relevant sections of the Act 
refer to these data ``as reported and defined'' under the authorities 
of these Federal organizations for the 3 most recent years before the 
beginning of the fiscal year involved. In light of the clear language 
of the statute, in our calculations of the State allotments we will use 
the data regarding the number of children and the annual average wages 
as provided by the Bureau of the Census and the Bureau of Labor 
Statistics. That is, we will not make any adjustments or corrections to 
this data provided by the Bureau of the Census or the Bureau of Labor 
Statistics.
    In order for HCFA to determine State CHIP allotments for a fiscal 
year within a reasonable time period at the beginning of the fiscal 
year, we intend to use the most recent official data that are available 
from the Bureau of the Census and Bureau of Labor Statistics, 
respectively, just prior to the beginning of the fiscal year on October 
1. We will use this approach beginning with FY 2000, which begins on 
October 1, 1999.
    We used a different approach for FY 1998 and FY 1999. In 
calculating the FY 1998 reserved CHIP allotments, which were published 
in the Federal Register on September 12, 1997, we used the most recent 
official data that were available from the Bureau of the Census and 
Bureau of Labor Statistics, respectively, prior to the September 1 
before the beginning of FY 1998 (that is, through August 31, 1997).
    In particular, through August 31, 1997, the only official data 
available from the Bureau of the Census on the numbers of children were 
data from the 3 March CPSs conducted in March 1994, 1995, and 1996 that 
reflected data for the 3 calendar years 1993, 1994, and 1995. If we had 
waited for the official data available from the Bureau of the Census 
through September 30, 1997, we would have had to delay publication of 
the FY 1998 CHIP allotments until after the beginning of FY 1998. Since 
this was a new program, we believed that for the first year States 
needed to be able to plan in advance.
    Section 457.608 specifies that in determining a fiscal year 
allotment, we will use the most recent official data that are available 
from the Bureau of the Census and the Bureau of Labor Statistics prior 
to the October 1 before the beginning of the fiscal year.
    HCFA does not modify or adjust the Bureau of Census compilation of 
CPS data on the number of children. HCFA is, however, incorporating a 
correction made by the Bureau of Census to more accurately reflect 
underlying reported CPS data. The Bureau of Census recognized that the 
data collected and reported on the numbers of children in the March 
Supplements to the CPS were not accurately reflected in the compilation 
provided to HCFA for the September 12, 1997 calculation of the FY 1998 
reserved allotments. In particular, children who had access to services 
through the Indian Health Services (IHS), but no other health insurance 
coverage, were identified in the compiled number of children as having 
health insurance coverage. The Bureau of Census has adjusted the 
compiled numbers of children to reflect the fact that the data shows 
that these children do not actually have health insurance coverage. In 
light of this adjustment to more accurately reflect reported CPS data, 
HCFA recalculated and republished the FY 1998 reserved allotments in 
the Federal Register on February 8, 1999 (64 FR 6102). This is 
consistent with the express incorporation of this Bureau of Census 
adjustment into the FY 1999 allotment calculation under Public Law 105-
277.
    In accordance with Pub. L. 105-277, the FY 1999 reserved allotments 
were based on the same data as the revised FY 1998 reserved allotments. 
These reserved allotments were also published in the Federal Register 
on February 8, 1999 (64 FR 6102).
    Specifically, for FY 1999, the Number of Children for each State 
(provided in thousands) was determined and provided by the Bureau of 
the Census based on the arithmetic average of the number of low-income 
children and low-income children with no health insurance as calculated 
from the 1994, 1995 and 1996 March supplements to the CPS, as adjusted 
in August 1998. The State Cost Factor was calculated based on the final 
State Cost Factor data for each of the most recent 3 years before the 
beginning of the fiscal year, through August 31, 1997 available from 
BLS. This is the same data that was used in the calculation of the FY 
1998 allotments.
    In accordance with section 2104(b)(4) of the Act, Sec. 457.608(e) 
specifies that each State, (including the District of Columbia) with an 
approved State plan will receive a minimum allotment for a fiscal year 
of $2 million. This section also provides that in the event that a 
State's allotment as determined by the formula described above is below 
this $2 million minimum, it will be increased to $2 million; and the 
increase will be offset by a pro rata reduction in allotments to other 
States so that the total amount of allotments to all States in a fiscal 
year does not exceed the total amount available nationally for 
allotment to the States and the District of Columbia.
    We specify in Sec. 457.608(f) the formula for determining 
individual allotments for the 50 States and the District of Columbia. 
The formula for determining each State's allotment of the total 
available allotment is indicated in section 2104(b)(1) of the Act. The 
example below shows the methodology for determining each State 
allotment amount for FY 1998.
5. Formula for Calculating the State Allotment for a Fiscal Year 
(Sec. 457.608(d))
    The methodology for determining the State allotment for a fiscal 
year is in accordance with the following formula:
[GRAPHIC] [TIFF OMITTED] TP04MR99.000

SAi = Allotment for a State for a fiscal year.
Ci = Number of children in a State (section 
2104(b)(1)(A)(i)) for a fiscal year.

This number is based on the number of low-income children for a State 
for a fiscal year and the number of low-income children for a State for 
a fiscal year with no health insurance coverage for the fiscal year 
determined on the basis of the arithmetic average of the number of such 
children as reported and defined in the 3 most recent March supplements 
to the Current Population Survey of the Bureau of the Census before the 
beginning of the fiscal year. (section 2104(b)(2)(B) of the Act). As 
discussed above, the number of children will be the most recent data 
officially available and reported ad defined by the Bureau of the 
Census prior to October 1 before the beginning of the fiscal year.
    For each of the fiscal years 1998 through 2000, the number of 
children is equal to the number of low-income children in the State for 
the fiscal year with no health insurance coverage. For fiscal year 
2001, the number of children is equal to the sum of 75 percent of the 
number of low-income children in the State for the fiscal year with no 
health insurance coverage and 25 percent of

[[Page 10417]]

the number of low-income children in the State for the fiscal year. For 
fiscal years 2002 and thereafter, the number of children is equal to 
the sum of 50 percent of the number of children in the State for the 
fiscal year with no health insurance coverage and 50 percent of the 
number of low-income children in the State for the fiscal year (section 
2104(b)(2)(B)).

SCFi = State cost factor for a State (section 
2104(b)(1)(A)(ii)).

    For a fiscal year, this is equal to:

.15 + .85  x  (Wi/WN) (Section 2104(b)(3)(A)).

Wi = The annual average wages per employee for a State 
(section 2104(b)(3)(A)(ii)(I)).
WN = The annual average wages per employee for the 50 States 
and the District of Columbia for such year (section 
2104(b)(3)(A)(ii)(II)).

The annual average wages per employee for a State or for all States and 
the District of Columbia for a fiscal year is equal to the average of 
such wages for employees in the health industry (SIC code 80), as 
reported by the Bureau of Labor Statistics for the Department of Labor 
for each of the 3 years before the beginning of the fiscal year. 
Although section 2104(b)(3)(B) of the Act refers to the SIC code 8000, 
the Bureau of Labor Statistics reports the wages for employees in the 
health services industry using SIC code 80, which is more general. As 
discussed above, the health industry wages will be the most recent data 
available and reported and defined by the Bureau of Labor Statistics 
prior to October 1 before the beginning of the fiscal year. (section 
2104(b)(3)(B)).

<3-ln-grk-S>(Ci  x  SCFi) = This is the sum of 
the products of Ci  x  SCFi for each State 
(section 2104(b)(1)(B)).
ATA = Total amount available for allotment to all States and 
the District of Columbia for the fiscal year. For FY 1998, this is 
$4,224,262,500.
6. Reserved Allotment for Each State (Sec. 457.608(g))
    Although the statute provides that the Secretary shall make an 
allotment to a specific state if it has an approved State child health 
plan, we are proposing a process under which State CHIP allotments will 
be determined and ``reserved'' for each and every State for the fiscal 
year, regardless of whether the States have submitted and have an 
approved State child health plan. The amount of the ``reserved'' 
allotment for each State would be determined in accordance with the 
formula provided for in section 2104(b) of the Act.
    In accordance with this approach, Sec. 457.608 specifies that for 
each fiscal year, HCFA will develop the reserved allotments for the 50 
States and the District of Columbia and the Commonwealths and 
Territories based on the principle that an allotment amount should be 
reserved and available for each State, regardless of whether the State 
has submitted a State child health plan or whether that plan is 
approved. This will provide States with the flexibility and time to 
develop their programs and submit their State child health plans. The 
reserved allotment does not represent an actual allotment for a State. 
The reserved allotment may be established as a State's actual allotment 
for a fiscal year only upon submission and approval of the States' 
child health assistance plan by the end of the fiscal year (or, in the 
case of fiscal year 1998, by the end of fiscal year 1999). Furthermore, 
as discussed below, the State's final allotment for the fiscal year may 
differ from the State's reserved allotment. Since the effective date 
for the States' CHIP plans could have been as early as October 1, 1997, 
we published the FY 1998 reserved allotments for the States, District 
of Columbia and Commonwealths and Territories, in a separate Federal 
Register notice (67 FR 48098) on September 12, 1997, as if they all had 
approved State child health plans. We believe it is important for 
States to be informed of a reserved allotment at the beginning of the 
fiscal year so that States have an opportunity to plan accordingly.
    Reserved allotments are determined through the method described in 
section 4 in accordance with the formula provided for in section 
2104(b) of the Act.
7. Final Allotment for Each State (Sec. 457.608(h))
    The statute requires that final State allotments for each fiscal 
year be determined based only on the States that have approved State 
child health plans by the end of the fiscal year. This regulation 
proposes that the factors used in calculating each State's final 
allotments for a fiscal year, the number of children and the State cost 
factor, will be the same as the factors used in determining and 
publishing the reserved allotments. As discussed previously, in section 
4 above, in general we propose to use the official data for these 
factors available from the Bureau of the Census and the BLS prior to 
October 1 before the beginning of the fiscal year. More recent data 
than that used in calculating the reserved allotments for a fiscal year 
will not be used in determining the final allotments for that fiscal 
year. This will establish a consistent basis for States in planning 
their State children's health insurance programs, and will mitigate the 
potentially significant fluctuations in allotments that could occur 
because of changes in these factors.
    However, as discussed above in section 4, on reserved allotments, 
the Bureau of the Census has recently changed the way it reports 
children having access to IHS services. In order to reflect this Bureau 
of Census adjustment in the calculation of the final allotments for FY 
1998, we propose to use the revised number of children factor reflected 
in the revised reserved FY 1998 allotments published in the Federal 
Register on February 8, 1999 (64 FR 6102). These numbers are slightly 
different from what was used when the reserved allotments were 
published in the Federal Register on September 12, 1997.
    The Bureau of Census will continue to use this new reporting 
methodology of children with access to IHS services in the future, and 
therefore it will be reflected in the reserved state allotments and the 
final CHIP allotments.
8. Allotments for the Commonwealths and Territories (Sec. 457.608(f))
    New Sec. 457.608(f) specifies the amount of the total allotment 
available for a fiscal year to the Commonwealths and the Territories 
and the amount of the specific allotment for each Commonwealth and 
Territory. Section 2104(c) of the Act provides for allotments to the 
Commonwealths and Territories of Puerto Rico, Guam, the Virgin Islands, 
American Samoa, and the Northern Mariana Islands. This section of the 
Act specifies that for a fiscal year, the Secretary shall allot 0.25 
percent of the total amount appropriated for the fiscal year among each 
of the Commonwealths and Territories in accordance with the following 
percentages specified in section 2104(b)(2) of the Act:

Puerto Rico--91.6 percent
Guam--3.5percent
Virgin Islands--2.6 percent
American Samoa--1.2 percent
Northern Mariana Islands--1.1 percent

    For fiscal year 1998 a total of $10,737,500 (.25 percent of 
$4,295,000,000) is available for allotment to the Commonwealths and 
Territories. For FY 1999 the Commonwealths and Territories will receive 
$10,687,500 (.25 percent of $4,275,000,000) under the formula described 
above. In addition, under Pub. L. 105-277, an additional $32 million

[[Page 10418]]

was appropriated for allotment only to the Commonwealths and 
Territories and only for FY 1999. This newly appropriated $32 million 
does not reduce the previous FY 1999 CHIP appropriation ($4.275 
billion) and is in addition to the 0.25 percent of the amount discussed 
above ($10,687,500). Therefore, for FY 1999, a total of $42,687,500 
will be available for allotment to the Commonwealths and Territories.
    We will determine the reserved allotments for a fiscal year for the 
Commonwealths and Territories in accordance with the above methodology, 
as if every Commonwealth and Territory has an approved child health 
plan. If all the Commonwealths and Territories do not have an approved 
plan, the final allotments will be determined based only on those with 
approved child health plans and allotted in proportion to the above 
percentages.
9. Period of Availability of State Allotments for a Fiscal year 
(Sec. 457.610)
    Section 457.610 specifies that a State's final allotment for a 
fiscal year as determined in accordance with the formula in 
Sec. 457.608, remains available for the State, District of Columbia, 
and Commonwealth and Territory expenditures claimed in a 3-year period 
of availability beginning with the fiscal year, and ending at the end 
of the second fiscal year following the fiscal year. For example, for 
the FY 1998 final allotment, the period of availability is FY 1998 
through FY 2000.
    In addition, as discussed below, there may be a redistribution 
process to reallot unexpended amounts of States' allotments for a 
fiscal year. Section 457.610 specifies that the amounts of 
redistributed allotments for a fiscal year will be available through 
the end of the fiscal year immediately following the 3-year period of 
availability for a fiscal year. For example, for the redistribution of 
the unexpended amounts of the FY 1998 final allotments, the 
redistributed amounts would be available to States through the end of 
FY 2001.
10. Redistribution Process
    We intend that at the end of the 3-year period of availability for 
a fiscal year allotment, HCFA will redistribute to States the unused 
amounts of allotments for that fiscal year. Section 2104(f) of the Act 
requires the Secretary to determine an appropriate procedure for 
redistribution of allotments from States that ``do not expend all of 
the amount of such allotments during the period in which such 
allotments are available'' under section 2104(e) of the Act, ``to 
States that have fully expended the amount of their allotments''. Under 
section 2104(e) of the Act, the period for which a particular fiscal 
year States' allotments are available is through the end of the second 
year following the fiscal year for which the allotment was established. 
That is, an allotment for a particular fiscal year is available to each 
State for up to a total of 3 years, the fiscal year and the 2 years 
following. For example, the FY 1998 allotments, would be available from 
the beginning of FY 1998 (October 1, 1997) through the end of FY 2000 
(September 30, 2000). Any unused amounts of States' allotments for a 
fiscal year at the end of the 3-year period will be distributed to 
States that have fully spent their allotments. HCFA intends to apply 
the redistribution process as soon as possible after the end of the 3-
year period, after determining the amount of the unused allotments and 
the States to which such amounts should be redistributed.
    At this time HCFA is not addressing the redistribution process.

D. Payment to States

General Payment Process (Sec. 457.614)
    New Sec. 457.614 specifies that a State may make claim for payment 
for expenditures incurred during the period of availability related to 
that fiscal year. This section also specifies that in order to receive 
a claim for payment, a State must submit budget estimates of quarterly 
funding requirements for Medicaid and the Children's Health Insurance 
Programs, and submit an expenditure report. In turn, HCFA will issue an 
advance grant to a State as described in Sec. 457.630; track and apply 
a State's reported expenditures against the State allotment; and track 
and apply relevant State expenditures for establishing and tracking the 
10 percent limit.
    As discussed previously, section 2105 requires the Secretary to 
make payments to each State with an approved State child health plan 
for child health assistance for targeted low-income children who meet 
the coverage requirements in section 2103, after reducing for 
expenditures for presumptive eligibility provided under section 1920A 
of the Act and Medicaid expansions for which the State receives a CHIP-
related enhanced matching rate. Section 2105 also specifies that no 
more than 10 percent of a State's payment may be used for the total 
costs of: other child health assistance for targeted low-income 
children; health services initiatives; outreach; and administrative 
costs.

E. Application and Tracking of Payments Against the Fiscal Year 
Allotments (Sec. 457.616)

    Section 457.616 of this regulation specifies the principles that 
will be used for tracking payments and States' title XIX and title XXI 
expenditures against the States' title XXI allotments.
    Sections 2105(a) and 2104(d) of the Act require that title XXI 
fiscal year allotments be reduced by the following categories of 
expenditures:
    (1) Payments made to a State under its title XIX Medicaid program 
with respect to section 1903(a) of the Act for expenditures claimed by 
the State during a fiscal year that are attributable to the provision 
of medical assistance to a child described in section 1905(u)(2) of the 
Act on the basis of the enhanced FMAP described in sections 1905(b) and 
2105(b) of the Act.
    (2) Payments made to a State under its title XIX Medicaid program 
with respect to section 1903(a) of the Act for expenditures claimed by 
the State during a fiscal year that are for attributable to the 
provision of medical assistance to a child described in section 
1905(u)(3) of the Act on the basis of the enhanced FMAP described in 
sections 1905(b) and 2105(b) of the Act.
    (3) Payments made to a State under section 1903(a) of the Act for 
expenditures claimed by the State during a fiscal year that are 
attributable to the provision of medical assistance to a child during a 
presumptive eligibility period under section 1920A of the Act.
    (4) Payments made to a State under its title XXI children's health 
insurance program with respect to section 2105(a) of the Act for 
expenditures claimed by the State during a fiscal year.
    HCFA will use the following principles, referenced in 
Sec. 457.616(c) of this regulation, to: Coordinate the application of 
the title XIX and title XXI expenditures against the title XXI fiscal 
year allotments; determine the order of these expenditures; and 
determine how expenditures apply against multiple fiscal year 
allotments.
     Principle 1. Apply title XIX Medicaid payments before 
title XXI CHIP payments (section 2104(d)). Federal payments for title 
XIX expenditures must be applied against the title XXI fiscal year 
allotments before payment for title XXI expenditures are applied. 
Specifically, u2 (the total computable expenditures claimed for the 
fiscal year under section 1905(u)(2) of the Act), u3 (the total 
computable expenditures claimed for the fiscal year under section 
1905(u)(3) of the Act), and PE (presumptive

[[Page 10419]]

eligibility) payments under section 1920A of the Act in the Medicaid 
program are applied before any title XXI payments are applied.
     Principle 2. Federal payments for expenditures must be 
applied against a fiscal year allotment based on the quarter in which 
they are claimed (section 2104(b), (d), and section 2105(a)). Federal 
payment for title XIX and title XXI expenditures must be applied 
against a fiscal year allotment based on the quarter in which they are 
claimed. Thus, Principle 1 above applies only on the basis of the 
quarter the expenditures are claimed. For example, if title XXI 
expenditures were claimed in one quarter and title XIX expenditures 
were claimed in a second, subsequent quarter, the title XXI 
expenditures claimed in the first quarter would be applied against the 
fiscal year allotment before the title XIX expenditures claimed in the 
second quarter.
     Principle 3. Expenditures should be applied consistently 
over the 3-year period of availability for fiscal year allotment 
(Section 2101(a), section 2104(e), and (f)). Federal payment for 
expenditures should be applied consistently over the 3-year period of 
availability for fiscal year allotments. In order to treat States 
consistently in the redistribution process, as appropriate, HCFA will 
apply the same ordering of expenditures and allotments for all States.
     Principle 4. Title XIX expenditures should be applied in 
the order which provides the most benefits for States. Federal payment 
for title XIX expenditures should be applied in the order that 
maximizes Federal reimbursement for States. We believe the order that 
most benefits States is as follows: u2 expenditures first, then u3 
expenditures, and lastly PE expenditures. This is because u2 and u3 
expenditures are funded at the enhanced FMAP rate which drops to the 
regular FMAP rate when the allotment is exhausted. PE expenditures are 
always matched at the regular (lower) FMAP, and also continue to be 
matched after the allotment is exhausted.
     Principle 5. Apply expenditures and allotments in the 
least administratively burdensome, most effective and efficient manner 
(section 2101(a). To the greatest extent possible HCFA will use 
processes which are the least administratively burdensome, and the most 
effective and efficient. For example, we believe a ``first-in-first-
out'' (FIFO) method should be applied both with respect to the 
application of claims for FFP for expenditures against the allotment 
and the availability of the fiscal year allotments. Thus, Federal 
payments for expenditures would be applied against a fiscal year 
allotment in the order they are claimed, and an earlier fiscal year 
allotment would be used before a subsequent fiscal year allotment. For 
example, in the case of a State for which FY 1988 allotment amounts are 
carried over to FY 1999, Federal payments for expenditures claimed in 
FY 1999 would first be applied against the FY 1998 carryover allotment 
amounts before being applied against subsequent fiscal year allotments 
(see Principle 7).
     Principle 6. Application of claims for Federal payments in 
expenditures for 1 fiscal year against a subsequent fiscal year 
allotment (section 2104(e), (f)). Federal payment for expenditures 
claimed in one fiscal year would be applied against a subsequent fiscal 
year's allotment, if the earlier fiscal year's allotment was exhausted. 
However, this could not be done until the subsequent year's allotment 
was actually available. For example, Federal payments for expenditures 
claimed in FY 1998 after the FY 1998 allotment was exhausted would be 
applied against the FY 1999 allotment, but only after FY 1999 had begun 
and the FY 1999 allotment had become available.
     Principle 7. Amounts of a State's fiscal year allotments 
for prior years that have not been expended and are ``carried over,'' 
are available for matching expenditures within the 3-year period of 
availability (section 2104(e), (f)). Under the FIFO method (see 
Principle 5), unexpended amounts of an allotment for a fiscal year 
would be carried over for use in subsequent fiscal years and through 
the end of the 3-year period of availability. Furthermore, the carried 
over allotment would be used before the subsequent fiscal year 
allotment was used. For example, unspent amounts of the FY 1998 
allotment may be carried over up through FY 2000. The carried over 
amounts of the FY 1998 allotment would be used before the allotments 
for FYs 1999 and 2000; that is, expenditures for FYs 1999 and 2000 
would be applied against the FYs 1998 carryover amount before being 
applied against the FYs 1999 and 2000 allotments (Principle 5). 
Application of Principles 2, and 5 through 7 may mitigate the necessity 
of having to go through a redistribution process because earlier 
allotments would be exhausted by Federal payments for expenditures as 
they were claimed during the period of availability.
    The following examples illustrate the above principles.

     Example 1--Illustration of Principle 1. The amount 
remaining of the fiscal year 1998 allotment is $5 million. Claims 
for payments for title XIX expenditures in a quarter are $4 million. 
Title XXI claims for payments for expenditures in the same quarter 
are $3 million. Under Principle 1, the $4 million in title XIX 
expenditures are applied against the remaining $5 million of the FY 
1998 allotment first, leaving $1 million remaining of the fiscal 
year 1998 allotment. Therefore, FFP would be available for only $1 
million of the $3 million in claims for title XXI expenditures; and 
at that point, the fiscal year 1998 allotment would be exhausted. 
The remaining $2 million in claims for title XXI expenditures would 
have to be funded by the State.
     Example 2--Illustration of Principle 2. The fiscal year 
1998 allotment is $5 million. In quarter 1 of FY 1998, $3 million in 
title XXI expenditures are claimed. In quarter 2 of fiscal year 1998 
there are $4 million in claims for title XIX expenditures. Since the 
$3 million in claims for title XXI expenditures are claimed (first) 
in quarter 1, under Principle 2, they would be applied first against 
the fiscal year 1998 allotment. This would leave $2 million 
remaining under the fiscal year 1998 allotment. In quarter 2 only $2 
million in FFP would be available from the fiscal year 1998 
allotment with respect to the $4 million title XIX claims for 
expenditures in that quarter. At that point, the fiscal year 1998 
allotment would be exhausted, and FFP for the remaining $2 million 
in claims for title XIX expenditures would be available under 
Medicaid at the regular Medicaid FMAP.
     Example 3--Illustration of Principle 4. The fiscal year 
1998 allotment is $5 million. There are the following claims for 
expenditures in Quarter 4 of fiscal year 1998: u2 $5 million, u3 $4 
million, and PE $1 million. In accordance with Principle 4, in this 
case the $5 million in claims for u2 expenditures would be applied 
against the fiscal year 1998 allotment first. Since the amounts of 
the claims for u2 expenditures and the fiscal year 1998 allotment 
are the same, the entire amount of u2 expenditures would be 
reimbursed at the enhanced FMAP. Although the $5 million fiscal year 
1998 allotment has been exhausted, the claims for u3 and PE 
expenditures would still be reimbursed under the Medicaid program at 
the regular FMAP rate. Again, this is because the regular Medicaid 
FMAP rate continues for these groups, even though the fiscal year 
1998 allotment was exhausted.
     Example 4--Illustration of Principle 6. The fiscal year 
1998 and 1999 allotments are $5 million for each fiscal year. The 
State claims $6 million for title XXI expenditures for fiscal year 
1998, and $4 million for title XXI expenditures for fiscal year 
1999. In this case, the $6 million in claims for fiscal year 1998 
expenditures reduce the fiscal year 1998 allotment to $0 with $1 
million of the fiscal year 1998 expenditures remaining unpaid. When 
the fiscal year 1999 allotment becomes available, the remaining $1 
million in claims for fiscal year 1998 expenditures would be applied 
against the fiscal year 1999 allotment, leaving $4 million remaining 
of the fiscal year 1999 allotment. The $4 million

[[Page 10420]]

in claims for title XXI fiscal year 1999 expenditures claimed would 
then be paid from the fiscal year 1999 allotment, thereby exhausting 
the remaining fiscal year 1999 allotment.
     Example 5--Illustration of Principles 5 and 7. The 
fiscal year 1998 and fiscal year 1999 allotments are $5 million for 
each fiscal year. The State claims $4 million for title XXI 
expenditures for fiscal year 1998 and $6 million for title XXI 
expenditures for fiscal year 1999. Since the fiscal year 1998 was 
only reduced by the $4 million amount in claims for fiscal year 1998 
title XXI expenditures, the $1 million remaining of the fiscal year 
1998 allotment would be ``carried over'' to fiscal year 1999. In 
applying the claims for fiscal year 1999 expenditures, $1 million of 
the $6 million would first be applied against the carryover of the 
fiscal year 1998 allotment. The remaining $5 million for the fiscal 
year 1999 claims would be applied against the remaining $5 million 
allotment for fiscal year 1999, reducing the remaining fiscal year 
1999 allotment to $0.

F. Ten Percent Limit on Certain Children's Health Insurance Program 
Expenditures (Sec. 457.618)

1. Limit on Four Categories of Expenditures (Sec. 457.618(a))
    Sections 2105(a)(2) and 2105(c)(2) of the Act specifies that there 
are 4 categories of expenditures for which State claims for Federal 
funds at the enhanced FMAP are limited: administrative expenditures, 
outreach, health initiatives, and certain other child health 
assistance.
2. No Federal Payment for Expenditures in Excess of the Limit 
(Sec. 457.618(b))
    Section 457.618(b) specifies that Federal payments for the 
categories of limited expenditures claimed by a State for a fiscal year 
will not be available to the extent the total of such expenditures 
exceeds the 10 percent limit calculation.
3. Ten Percent Limit (Sec. 457.618(c))
    Under section 2105(c)(2)(A) of the Act, States may receive funds at 
the enhanced FMAP for administrative expenditures, outreach, health 
services initiatives, and certain other child health assistance, only 
up to a ``10 Percent Limit.'' The ``10 Percent Limit'' specifies that 
the ``total computable'' amount of these expenditures (the combined 
total State and Federal share of an expenditure) for which FFP may be 
claimed cannot exceed 10 percent of the sum of the total computable 
expenditures made under section 2105(a) of the Act and the total 
computable expenditures based on the enhanced match made under sections 
1905(u)(2) and (u)(3) of the Act.
    This 10 Percent Limit is applied on an annual fiscal year basis, 
and may be waived by the Secretary under section 2105(c)(2)(B) of the 
Act when coverage is provided through cost-effective community based 
health delivery systems. This proposed rule does not address the waiver 
process or standards.
    Significant technical corrections were made to the 10 percent limit 
in Pub. L. 105-100. Prior to those amendments, the statute required 
calculation of the limit on a quarterly basis. This was changed to an 
annual basis. Furthermore, prior to the technical amendments, the limit 
was calculated on the basis of the Federal share of the expenditures 
while the expenditures applied against the limit were in total 
computable amounts. The technical amendments made both the calculation 
of the 10 percent limit and the expenditures applied against the 10 
percent limit based on the total computable amounts of such 
expenditures.
    These provisions along with the formula for calculating the 10 
percent limit indicated below are specified in new Sec. 457.618(c).
4. Formula for Calculating the 10-Percent Limit (Sec. 457.618(c)(3))
    The following formula for the 10 Percent Limit (L10%) is in 
accordance with the referenced statutory provisions.

L10% = (a1 + u2 + u3)/9

a1 = Total computable expenditures claimed for the fiscal year under 
section 2105(a)(1) of the Act
u2 = Total computable expenditures claimed for the fiscal year under 
section 1905(u)(2) of the Act for which Federal payments under section 
1903(a)(1) of the Act are based on the EFMAP
u3 = Total computable expenditures claimed for the fiscal year under 
section 1905(u)(3) of the Act for which Federal payments under section 
1903(a)(1) of the Act are based on the EFMAP

    Under this formula, the 10 percent limit is determined by dividing 
the State's CHIP program expenditures (meaning those expenditure that 
are not subject to the 10 percent limit) by 9. Calculating the 10 
percent limit in this way ensures that the capped expenditures (meaning 
those expenditures that are applied against the 10 percent limit) are 
no more than 10 percent of the total expenditures including such capped 
expenditures. However, the amounts of the State's CHIP allotment(s) 
available in the fiscal year also provides the overall limit on the 
State's total CHIP expenditures in the fiscal year. In effect, the 
total of all the State's CHIP expenditures (that is, the program 
expenditures plus the expenditures capped by the 10 percent limit) 
cannot exceed the amounts of the State's CHIP allotment(s) available in 
the fiscal year. Therefore, we specify in Sec. 457.618(c)(5) that a 
State's 10 percent limit for a fiscal year may be no greater than 10 
percent of the total computable amounts of the State's allotment(s) 
available in the fiscal year, even if the application of the formula 
indicated above resulted in a larger amount. Thus, the 10 percent limit 
is the lower of: the amount determined under the formula indicated 
above; or 10 percent of the total computable amount of the CHIP 
allotment(s) available in that fiscal year.
    The following example illustrates the calculation of the 10 Percent 
Limit based on a State's expenditures claimed for the fiscal year:

    Example: The State's title XXI enhanced FMAP is 65 percent (that 
is, .65). The total computable expenditures claimed for the fiscal 
year under the section 2105(a)(1) category (a1) is $10 million; the 
Federal share claimed for those expenditures is $6.5 million (0.65 x 
$10 million). The total computable expenditure claimed for the 
fiscal year that are applicable against the 10 percent limit (for 
example, administrative expenditures) is $3 million. The total 
computable expenditures claimed for the fiscal year for the section 
1905(u)(2) category (u2) is $3 million; the Federal share claimed 
for these expenditures is $1,95 million (.65  x  $3 million). The 
total computable expenditures claimed for fiscal year for the 
section 1905(u)(3) category (u3) is $2 million; and the Federal 
share claimed for those expenditures is $1.3 million (.65  x  $2 
million).
    In this example, the 10 Percent Limit is a total computable 
amount of $1,666,667, calculated as follows:

L10% = (a1 + u2 + u3)/9

a1 = Total computable expenditures for the fiscal year under section 
2105(a)(1) of the Act.
u2 = Total computable expenditures for the fiscal year under section 
1905(u)(2) of the Act.
u3 = Total computable expenditures for the fiscal year under section 
1905(u)(3) of the Act.
L10% = (($10 million (a1) + $3 million (u2) + $2 million (u3))/)9 = 
$15 million/9 = $1,666,667.

    In this example, FFP would not be available for that portion of the 
section 2105(a)(2) expenditures applicable against the 10 percent limit 
that are in excess of the 10 Percent Limit of $1,666,667, a total 
computable amount. Thus, although the State submitted $3 million in 
total computable amounts of section 2105(a)(2) expenditures, only 
$1,666,667 of the $3 million total computable amount would be 
allowable, and the remainder of the $1,333,333 total computable amount 
would be potentially disallowable.

[[Page 10421]]

    Under this example, the allowable amount of Federal funds available 
under the 10 Percent Limit would be $1,083,334 (.65  x 0000666,667); 
and the unreimbursable amount of Federal funds in excess of the 10 
Percent Limit would be $866,667 (.65  x  $1,333,333).
    The following example illustrates the ``limit on the 10 percent 
limit'' related to the available allotments in the fiscal year:

    Example: The fiscal year is FY 1999. The State's carryover 
allotment from FY 1998 is $3 million and the FY 1999 allotment is 
$10 million. The enhanced EMAP for each of the FYs 1998 and 1999 is 
65 percent. Therefore, the total computable amount of the total 
allotment available in FY 1999 is $20 million determined as:

($3 million (the FY 1998 carryover allotment) + $10 million (the FY 
1999 allotment))/.65 (the EFMAP) = $13 million/.65 = $20 million

Ten percent of $20 million is $2 million. Therefore, the 10 percent 
limit is limited to $ 2 million.
    Under title XXI, FFP is available at the enhanced FMAP for a 
State's program and administrative expenditures (including related 
startup costs) during a period for which the State has an approved 
title XXI plan in effect. Initial State plans can be approved effective 
as early as October 1, 1997. As indicated above, such administrative 
expenditures (under section 2105(a)(2) of the Act) are subject to the 
10 Percent Limit which is calculated on a fiscal year basis. Therefore, 
startup costs will be limited by the amount of sections 2105(a)(1), 
1905(u)(2) and 1905(u)(3) expenditures claimed during the fiscal year 
in which the startup period occurs. The following example illustrates 
the availability of FFP for startup costs.

    Example: The 10 Percent Limit formula is:

L10% = (a1 + u2 + u3)/9
    a1 = Sec. 2105(a)(1) expenditures
    u2 = Sec. 1905(u)(2) expenditures
    u3 = Sec. 1905(u)(3) expenditures

In the first two quarters of the fiscal year, the State's a1, u2, 
and u3 expenditures are $0 and the State's start up administration 
expenditures (a2 expenditures) are $2.0 million. In the third 
quarter of the fiscal year, the a1, u2, and u3 expenditures total 
$.5 million and the startup and other (a2) administrative 
expenditures are $1.5 million. In the fourth quarter of the fiscal 
year, the a1, u2, and u3 expenditures total $8.5 million and the 
startup and other (a2) administrative expenditures are $1.0 million. 
The totals for the fiscal year are: $9.0 million ($0 + $.5 million + 
$8.5 million) in a1, u2, and u3 expenditure, and $4.5 ($2.0 + $1.5 
million + $1.0 million) in startup and other (a2) administrative 
expenditures. In this example, the 10 Percent Limit is $1.0 million, 
calculated as follows:

L10% = (a1 + u2 + u3)/9 = $9.0 million/9 = $1.0 million

    In this example, FFP would be available at the enhanced FMAP for 
$1.0 million of the $4.5 million of administrative costs. Thus, the 
relatively lower benefit expenditures at the beginning of the fiscal 
year combined with the relatively higher benefits expenditures at 
the end of the fiscal year serve as the basis for calculating the 
final 10 Percent Limit, determined on a fiscal year basis.

It is important to note that if a State has no expenditures other than, 
for example, startup administrative expenditures under section 
2105(a)(2)(D) of the Act during a fiscal year, no FFP under Title XXI 
will be available for such expenditures. This is because the 10 Percent 
Limit in this example would be $0, calculated as follows:

L10% = (a1 + u2 + u3)/9 = ($0 + $0 + $0)/9 = $0

    States may mitigate the effect of little or no program expenditures 
on the calculation of the 10 percent limit in one fiscal year by 
delaying the claiming of administrative expenditures until a subsequent 
fiscal year. In that case, the delayed administrative expenditures 
could be applied against the subsequent year's 10 percent limit, which 
may be calculated using presumably higher program expenditures.
5. Administrative Expenditures
    For purposes of payment under section 2105(a) of the Act, 
administrative costs are differentiated from the program costs referred 
to as ``child health assistance'' in section 2105(a)(1) of the Act 
(child health assistance is further defined in section 2110(a) of the 
Act). Child health assistance is generally referred to as ``payment for 
part or all of the cost of health benefits coverage for targeted low-
income children.'' Payment for such program costs which are within the 
scope of the State's CHIP benefit package meeting the requirements of 
section 2103 of the Act are not considered to be payment for 
administrative costs, and are generally not subject to the 10 Percent 
Limit.
6. Waiver of 10 Percent-Limit
    Under section 2105(c)(2)(B) of the Act, the Secretary may waive the 
10 percent limit on the expenditures described in section 2105(a)(2) of 
the Act if 3 conditions are met: (1) Coverage provided to targeted low-
income children through such expenditures meet the requirements of 
section 2103 of the Act, (2) the cost of such coverage is cost 
effective, and (3) such coverage is provided through the use of a 
community-based health delivery system such as through contacts with 
health centers receiving funds under section 330 of the Public Health 
Service Act or with hospitals such as those that receive 
disproportionate share payment adjustments under section 1886(d)(5)(F) 
or section 1923 of the Act. We are developing the requirements and 
conditions to implement the provision for waiver of the 10 percent 
limit. Therefore, this proposed rule does not address these issues. 
HCFA will address waiver procedures and standards at a later time.
7. FFP for State Expenditures (Sec. 457.622)
    Under section 2105(a) of the Act, FFP in all allowable title XXI 
expenditures, and certain title XIX expenditures is available at the 
enhanced FMAP rate. As specified in Sec. 457.622(b) and (c), a number 
of conditions apply with respect to the availability of FFP in States' 
expenditure claims at the enhanced FMAP.
    Section 2105(b) of the statute defines the enhanced FMAP as the 
regular Medicaid FMAP for the State, increased by a number of 
percentage points equal to 30 percent of the number of percentage 
points by which that FMAP is less than 100 percent, but in no case more 
than 85 percent. This formula, mathematically, could be expressed as 
the lesser of 85 percent or FMAP + [0.3  x  (100 percent--FMAP)]. In 
our proposed regulations, we simplify the statutory formula by 
multiplying the terms and arriving at a formula of the lesser of 85 
percent or (0.7  x  FMAP) + 30 percent. This formula is mathematically 
equal to the statutory formula.
    The enhanced FMAP rate is available in a State's expenditures only 
if the State has an approved title XXI State child health plan.
    The enhanced FMAP rate is available only if amounts of States' 
allotments for a fiscal year are available, that is, States' allotments 
have not been fully expended.
8. CHIP Related Title XIX Administrative Expenditures (Sec. 457.622(e))
    As specified in Sec. 457.622(e)(1), States have several options on 
how to claim FFP for CHIP related title XIX administrative 
expenditures. These administrative activities refer to the costs of 
State activities in support of certain Medicaid State plan options; 
specifically, the following provisions: coverage of children under 
section

[[Page 10422]]

1905(u)(2) and (3); and coverage of presumptive eligibility under 
section 1920A of the Act.
    There are a number of factors a State must consider in deciding 
which option to choose for claiming FFP for CHIP-related Medicaid 
administrative costs:
     The FFP rate for the administrative costs in the Medicaid 
and the CHIP programs. For example, if the Medicaid administrative FFP 
rate is 50 percent for a certain administrative activity and the CHIP 
enhanced FMAP rate was 65 percent, a State might decide on the basis of 
this factor to claim the expenditure under the CHIP program.
     The CHIP fiscal year 10 percent limit. Any administrative 
costs claimed under the CHIP program are subject to the 10 percent 
limit. However, claiming CHIP related Medicaid administrative costs 
under the 10 percent limit could affect the availability of FFP for 
other CHIP-only administrative costs, if the 10 percent limit was an 
issue. Note, if the 10 percent limit was reached, a State could still 
claim CHIP related Medicaid administrative costs that were over the 10 
percent limit under the Medicaid program.
     The availability of the CHIP fiscal year allotment. Any 
administrative costs claimed under the CHIP program are also subject to 
the State fiscal year allotment. Thus, whether any allotment amounts 
were available and how much they would be affected would be an issue. 
Note, that if the allotment was exhausted, a State could still claim 
CHIP related Medicaid administrative costs that were over the limit 
under the Medicaid program.

A State has a choice of two options on how it may claim the CHIP-
related Medicaid administrative costs. These are administrative costs 
related to the provision of medical assistance for expenditures 
described under sections 1905(u)(2) and (3), and section 1920A of the 
Act when a State's Medicaid expansion is also referenced in an approved 
State child health plan. The option a State chooses determines how the 
State will report the estimated and actual expenditures related to 
these administrative costs.
    Under the first option, States may choose to claim CHIP related 
title XIX Medicaid administrative expenditures under the title XXI 
CHIP, at the enhanced FMAP rate. States choosing this option must 
continue to claim these expenditures as administrative expenditures in 
a fiscal year until the 10 percent limit and/or the State allotment for 
the fiscal year is reached, at which point the State could claim these 
administrative expenditures under the Medicaid program.
    Under the second option, States may choose to claim CHIP related 
title XIX Medicaid administrative expenditures under the title XIX 
Medicaid program.
    States may select and apply each option with respect to any or all 
of the categories of FFP for administrative expenditures available in 
the title XIX Medicaid program, and specified in Sec. 433.15 of this 
part. There are potentially 4 FFP rates for the different categories of 
administrative expenditures indicated in that section: 50, 75, 90, and 
100 percent.
    The regulation further specifies that once a State has chosen to 
claim CHIP related title XIX administrative expenditures under one of 
the options for one or more of the FFP claiming categories for 
administrative expenditures listed in title XIX, it must continue to 
claim these administrative expenditures consistently on a fiscal year 
basis.
    As specified in Sec. 457.622(e)(2), allowable title XXI 
administrative expenditures support the operation of the State child 
health plan. Therefore, FFP for administration under title XXI is not 
available for costs of activities related to other programs. For 
example, FFP would not be available for generalized activities related 
to health education or social services.
    Section 457.622(e)(3) specifies that FFP for allowable title XXI 
administrative expenditures is not available in payments for 
expenditures that are paid for as part of another payment. That is, the 
effective and efficient operation of the State plan should include 
reasonable costs which do not duplicate payments that are already 
included and paid as part of another payment mechanism, for example:
     Rates for outpatient clinic services;
     Case management services;
     Part of capitation rate;
     Other provider rate; and
     Other program payments (including Federal, State, or local 
governmental programs.
    Section 457.622(e)(4) specifies that FFP is available for 
administrative expenditures for activities defined in sections 
2102(c)(1) and 2105(a)(2)(C) of the Act as outreach to families of 
children likely to be eligible for child health assistance under the 
plan or under other public or private health coverage programs to 
inform these families of the availability of, and to assist them in 
enrolling their children in, such a program. Section 457.622(e)(2) 
provides that States have the option to choose how to claim FFP for 
expenditures for title XIX Medicaid administrative activities, 
including outreach, related to the title XXI CHIP. If claimed under 
title XXI, FFP for outreach expenditures is available at the enhanced 
FMAP rate and subject to the 10 Percent Limit (unless subject to a 
waiver of such limit under section 2105(c)(2)(B) of the Act); if 
claimed under title XIX, FFP for such expenditures would be available 
at the regular Medicaid FFP rate for administration.
    Section 457.622(e)(5) specifies that FFP is available for 
administrative expenditures for activities specified in sections 
2102(c)(2) of the Act as coordination of the administration of the 
State children's health insurance program with other public and private 
health insurance programs. Furthermore, Sec. 457.622(e)(2) specifies 
that States may choose how to claim FFP for expenditures for title XIX 
Medicaid coordination administrative activities related to the title 
XXI CHIP. If claimed under title XXI, FFP for such expenditures is 
available at the enhanced FMAP rate and subject to the 10 Percent 
Limit; if claimed under title XIX, FFP for such expenditures would be 
available at the regular Medicaid FFP rate for administration.
    Therefore, FFP at the enhanced FMAP rate is available under title 
XXI specifically for coordination activities related to the 
administration of title XXI with other public and private health 
insurance programs. Section 457.622(e)(3) specifies that FFP would not 
be available for the costs of administering the other public and 
private health insurance programs. Coordination activities must be 
distinguished from other administrative activities common among 
different programs.
9. Limitations on Certain Payments for Certain Expenditures 
(Sec. 457.624)
    Section 457.624 implements provisions of sections 2105(c) of the 
Act, which limit the availability of FFP for certain coverage.
    Under section 2105(c)(1) and (7), payment for health insurance 
coverage under a State's child health insurance program may only be 
made to States for coverage of abortions that are necessary to save the 
life of the mother, or if the pregnancy is the result of rape or 
incest. Otherwise, payment may not be used to pay for abortions or 
assist in the purchase, whole or in part, of health benefit coverage 
that includes coverage of abortion.
    Section 2105(c)(3) of the Act provides for waiver for purchase of 
family coverage. Payment may be made to a State with an approved State 
child health plan for the purchase of family

[[Page 10423]]

coverage under a group plan or health insurance coverage that includes 
coverage of targeted low-income children only if the State establishes 
to the satisfaction of HCFA that--
    (1) Purchase of this coverage is cost-effective relative to the 
amounts that the State would have paid to obtain comparable coverage 
only of the targeted low-income children involved; and
    (2) This coverage shall not be provided if it would otherwise 
substitute for health insurance coverage that would be provided to such 
children but for the purchase of family coverage.
10. Prevention of Duplicate Payments (Sec. 457.626)
    This section implements section 2105(c)(6) of the Act, which limits 
payments for child health assistance when such payments would duplicate 
certain other health insurance coverage.
    Section 2105(c)(6) of the Act specifies that no payment will be 
made to a State for expenditures for child health assistance provided 
for a targeted low-income child under its State child health plan to 
the extent that a private insurer defined by the Secretary by 
regulation and including a group health plan (as defined in section 
607(l) of the Employee Retirement Income Security Act of 1974, a 
service benefit plan, and a health maintenance organization) would have 
been obligated to provide such assistance but for a provision of its 
insurance contract which has the effect of limiting or excluding such 
obligation because the individual is eligible for or is provided child 
health assistance under the State child health plan.
    As specified under section 2105(c)(6)(B) of the Act, except as 
otherwise provided by statute, no payment will be made to a State under 
its State child health plan for child health assistance provided for a 
targeted low-income child under its plan to the extent that payment has 
been made or can reasonably be expected to be made promptly as defined 
in accordance with regulations under any other Federally operated or 
financed health care insurance program, other than an insurance program 
operated or financed health care insurance program, other than an 
insurance program operated or financed by the Indian Health Service, as 
identified by the Secretary.
11. Other Applicable Federal Regulations (Sec. 457.628)
    Section 2107(e) provides that certain provisions of the Act outside 
of title XXI shall apply to title XXI ``in the same manner as they 
apply to a State under title XIX.'' HCFA continues to study how to best 
apply these provisions to title XXI ``in the same manner.'' As an 
interim measure, in Sec. 457.628, we propose to make certain Medicaid 
regulations directly applicable to title XXI.
    Section 457.628 specifies other regulations that are applicable to 
State CHIP programs. These are existing Medicaid and other Departmental 
programs and include, for example, the Medicaid regulations at 42 CFR 
subpart B, Sec. 433.50 related to the donations and taxes provisions 
issue. Under section 2107(e)(1)(C) of the Act, the limitations on 
provider taxes and donations (as referred to in section 1903(w) of the 
Act) must apply in States' CHIPs in the same manner as they do in the 
Medicaid program. Other Medicaid provisions, that are also applicable 
in States' CHIPs, include deferral and disallowance procedures 
(Secs. 457.210 and 457.212), appeals procedures, record keeping.

G. Grants

Grant Procedures (Sec. 457.630)
    Section 457.630 specifies the grant procedures that HCFA will use 
to issue grants awards to States with approved title XXI State plans.
    In general, based on the title XXI appropriation language the 
entire title XXI appropriation amount for each fiscal year referred to 
in section 2104(a) of the Act must be ``obligated'' by the Federal 
government by the end of such fiscal year. Any funds not obligated by 
the Federal government by the end of the fiscal year (that is, prior to 
the close of the related Federal government's accounting system for 
that fiscal year) will no longer be available to any State.
    However, as indicated in section C. 2. above, Pub. L. 105-174, 
enacted on May 1, 1998, provides that if a State child health plan is 
approved by HCFA on or after October 1, 1998, and before October 1, 
1999, the plan must be treated as having been approved for both FY 1998 
and FY 1999. Pub. L. 105-174 affects the general grant award process 
discussed above for FYs 1998 and 1999. Under the provisions of Pub. L. 
105-174, the FY 1998 allotments may not be finalized until the end of 
FY 1999, because States have until then to have their child health 
plans approved. Therefore, the Federal government must obligate the FY 
1998 CHIP allotments by issuing grant awards (for purposes of meeting 
the ``obligation'' requirements) equal to the total of the allotments 
for FY 1998, by the end of FY 1999. The Federal government must also 
obligate the FY 1999 allotments by the end of FY 1999 by issuing grant 
awards for FY 1999 equal to the total of the fiscal year allotments for 
each State by the end of FY 1999. Section 457.630 will reflect these 
requirements for issuance of the grant awards in order to obligate the 
allotment funds for each fiscal year.
    The funds are obligated by issuing title XXI grant awards. To 
ensure that all of the appropriated funds are available to States, HCFA 
will issue grant awards to all States with title XXI State plans 
approved by the end of the fiscal year (or by the end of fiscal year 
1999, for fiscal year 1998) which equal, in total, the national amount 
available for allotment to the 50 States, the District of Columbia, and 
the Commonwealths and Territories for that fiscal year (on September 
30). Such grant awards must be issued by the time the HCFA/HHS 
accounting system closes with respect to that fiscal year. The total of 
the grant awards for the fiscal year will equal the States'', 
Commonwealths'', and Territories' final allotments, described earlier. 
Therefore, in order for HCFA to act to approve each States' State child 
health plan by September 30 of a fiscal year, it is important for 
States to submit such plans as soon as possible and no later than July 
1 of that fiscal year.

H. FFP for Expenditures Provided During Presumptive Eligibility (PE) 
Period

    Section 4912 of the BBA amended the Medicaid statute to add a new 
section 1920A of the Act, which authorizes States to make medical 
assistance available in their Medicaid programs to low-income children 
on a cursory assessment of family income by a qualified entity, during 
a presumptive eligibility period pending submission and processing of a 
complete Medicaid application. Although the CHIP statute, title XXI of 
the Act, does not contain an explicit section similarly authorizing 
presumptive eligibility in States' CHIPs, we believe that States could 
implement a similar policy under title XXI as a health services 
initiative under section 2105(a)(2)(B) of the Act.
    We believe it would be useful to discuss some payment implications 
of different administrative approaches to claiming presumptive 
eligibility expenditures. Federal payments for presumptive eligibility 
expenditures for children who are not later determined to be Medicaid 
or CHIP eligible fall under the definition of title XXI health services 
initiatives, and therefore, are subject to the State's CHIP 10 percent 
limit (discussed in section II. F. 7. of this preamble and in 
Sec. 457.622) as well as the State's CHIP allotment. Because of this, 
States will need to carefully consider how they claim Federal payments 
for presumptive eligibility

[[Page 10424]]

expenditures, both in Medicaid and CHIP. We believe that States have a 
number of options in characterizing their presumptive expenditures that 
may increase available Federal funding for their programs, with respect 
to both the CHIP and Medicaid programs. For example:
    1. Presumptive Eligibility (PE) Under Title XIX--Section 1920A of 
the Act permits States to provide medical assistance under their title 
XIX Medicaid programs for up to two months to children during a PE 
period. Expenditures classified as Medicaid PE expenditures under 
section 1920A of the Act may only be claimed as medical assistance and 
matched at the regular FMAP under section 1905(b) of the Act; that is, 
the enhanced FMAP is not available for Medicaid PE expenditures. 
Furthermore, if the State has an approved title XXI child health plan, 
such payments for PE expenditures under section 1920A of the Act must 
be tracked and applied against the title XXI allotment.
    There are a number of options available to States for classifying 
and reporting medical assistance expenditures provided to children 
during the section 1920A PE period. In particular, the actual 
eligibility category in which PE children are ultimately placed through 
the regular eligibility determination may also determine the treatment 
of States' expenditures for these children. The options a State chooses 
with respect to reporting expenditures during the PE period and the 
ultimate category of eligibility (or ineligibility) will determine how 
the payments for expenditures provided during the PE period can be 
treated for purposes of application against the title XXI allotment and 
the FMAP rate (regular or enhanced) that is available for the 
expenditures.
    The following options are available to a State for classifying and 
reporting expenditures as PE expenditures in its Medicaid program when 
the State has an approved title XXI Child Health Plan and an associated 
fiscal year State allotment; these provisions will be set forth in new 
Sec. 447.88:
    (a) Identify and Claim PE Expenditures on Ongoing Basis--No 
Subsequent Adjustments.--A State can identify and claim FFP for all PE 
medical assistance expenditures on an ongoing basis. That is, under 
this option the State would claim FFP for PE expenditures as they are 
incurred and billed by providers, and would not make any further 
subsequent adjustments when the actual eligibility determination is 
made. Under this option, the amounts of the Federal payments for the PE 
expenditures would be applied against the States's CHIP allotments and 
would be claimed at the regular title XIX FMAP. This approach may be 
the easiest for States to administer, since no further adjustment or 
tracking of the payments would be necessary.
    (b) Delay Reporting PE-Related Expenditures Until After Actual 
Eligibility Determination.--Under this option a State would delay 
reporting of PE-related medical assistance expenditures until after the 
actual determination of eligibility. Under this option, a State would 
classify the expenditures as follows, in accordance with the actual 
eligibility determination, and would not claim for such expenditures 
until after the actual eligibility determination was made:
     Expenditures for children determined to be in a regular 
Medicaid eligibility category (for example, the Temporary Assistance 
for Needy Families (TANF) program related eligibility under section 
1931 of the Act) and not within a CHIP-related Medicaid expansion. 
These expenditures would be reported by the States as Medicaid title 
XIX expenditures under the Medicaid Budget and Expenditure System 
(MBES) and would be claimed and funded under the regular Medicaid 
eligibility category at the regular Medicaid FMAP. The associated 
Federal payments for expenditures in this category would not be applied 
against the CHIP allotment as a PE expenditure.
     Expenditures for children determined to be eligible in 
CHIP-related Medicaid expansions for children described in sections 
1905(u)(2) and/or (u)(3) of the Act in States with an approved title 
XXI child health plan. These expenditures would be reported as Medicaid 
title XIX expenditures under the MBES, and claimed, and funded under 
the Medicaid program at the enhanced FMAP, not the regular FMAP 
associated with PE expenditures. The associated Federal payments for 
these expenditures would be treated as expenditures under section 
1905(u)(2) or (3) of the Act, not as PE expenditures, and applied 
against the States' CHIP allotments.
     Expenditures for children determined to be eligible under 
a State's approved title XXI State child health plan. These 
expenditures would be reported as CHIP title XXI expenditures under the 
CBES, and claimed, and funded under the CHIP at the enhanced FMAP. The 
associated Federal payments for these expenditures would be applied 
against the States' CHIP allotments as payments for CHIP expenditures 
would be, not as payments for Medicaid PE expenditures.
     Expenditures for children ultimately determined not to be 
eligible for either the Medicaid or CHIP programs. These expenditures 
would be reported as Medicaid title XIX PE expenditures under the MBES, 
and claimed and funded at the regular Medicaid FMAP as PE expenditures. 
If the State has a title XXI allotment, the associated Federal payments 
would be applied against the CHIP allotment. Payments for these 
expenditures are treated and reported as PE expenditures.
    (c) Identify and Claim PE on Ongoing Basis--Adjust After Actual 
Eligibility Determination.--Similar to the process under subsection (a) 
above, on an ongoing basis States can identify and claim FFP for all 
section 1920A PE expenditures, as such expenditures are billed to and 
paid by the State. Under this option, after the actual eligibility 
determination is made, adjustments to the previous claims would be made 
to reflect the actual eligibility category determination. The PE 
expenditures would be reported on an ongoing basis as PE expenditures 
under title XIX, the payments for such expenditures would be applied 
against the CHIP allotments, and claimed at the regular title XIX FMAP 
rate. After the actual eligibility determination, the State would make 
an adjustment to the previously reported expenditures as in section II. 
H. 1.(b) above.
    2. Presumptive Eligibility (PE) Under Title XXI--A State may make 
PE expenditures under its State title XXI CHIP as an expenditure 
described in section 2105(a)(2)(B) of the Act, which permits health 
services initiatives. These expenditures would be reported as CHIP 
title XXI expenditures. As described in the previous sections on the 10 
percent limit, CHIP PE expenditures provided as a health services 
initiative are subject to the 10 percent limit and are counted against 
the State's title XXI allotment. The State has several options for 
claiming such expenditures which could mitigate the effect of such 
expenditures on the 10 percent limit and the CHIP allotment. The 
following options are available to a State for classifying and 
reporting expenditures as PE expenditures in its CHIP, and are similar 
to those discussed above with respect to the title XIX Medicaid PE 
program.
    In summary, States may:
     Identify and claim CHIP PE health services initiative 
expenditures on an ongoing basis--no subsequent adjustments.
     Delay reporting CHIP PE health services initiative 
expenditures until

[[Page 10425]]

after actual eligibility determination (and claim under final 
eligibility category).
     Identify and claim PE on an ongoing basis--adjust after 
actual eligibility determination to reflect final eligibility status.

I. Other Regulations Similar to the Medicaid Program

    Certain existing general Departmental regulations in part 45 of the 
Code of Federal Regulations (CFR) subparts 92 and 95 were conformed to 
the title XXI program. We revised the sections in these subparts.

J. Relationship of the CHIP, the CHIP Fiscal Year Allotments, and the 
Limit on FFP for the Commonwealths and Territories Under Section 1108 
of the Act

1. Commonwealth/Territory Limit Under Section 1108 of the Act
    Sections 1108(f) and (g) of the Act specifies limits on the amounts 
of FFP available to the Commonwealths and Territories for expenditures 
under the Medicaid program. However, under the CHIP legislation, the 
limits on FFP for the Commonwealths and Territories under section 1108 
of the Act do not apply with respect to FFP for expenditures that are 
attributable to the provision of Medical assistance to a child for 
which payment is made under section 1903(a)(1) of the Act on the basis 
of an enhanced FMAP under section 1905(b) of the Act (which in turn 
refers to the Federal matching rate specified at section 2105(b) of the 
Act). That is, if the Federal payments for expenditures are made at the 
enhanced FMAP referenced at section 2105(b) of the Act, such payments 
would not apply to the Commonwealth/Territory limit under section 1108 
of the Act. However, these payments would apply against the CHIP 
allotments established for the Commonwealths or Territories. However, 
if the Federal payments are for expenditures for which payment is not 
at the enhanced FMAP, such payments would be applicable against the 
Commonwealth and Territory limit under section 1108 of the Act. This 
issue is discussed in sections below.
2. Family Planning
    As indicated in previous sections, in general under the Medicaid 
program the Federal matching for States' family planning provided to 
CHIP related Medicaid expansion groups is not at the enhanced FMAP, but 
rather is at the regular Medicaid FMAP rates associated with such 
expenditures: 90 percent. Since the family planning FMAP rate is not at 
the enhanced FMAP referenced in section 2105(b) of the Act, in the 
States the Federal payments for such expenditures would not be 
applicable to the States' CHIP allotments. In general, this is also 
true for the Commonwealths and Territories. However, as indicated in 
section II. J. 1. above, if the Federal payments are not at the 
enhanced FMAP, but are at the ``regular'' Medicaid FMAP rate associated 
with the services (in the case of family planning, 90 percent), the 
Federal payments would be applied against the Commonwealth/Territory 
limit under section 1108 of the Act.
    Because of the potential effect that FFP claims for family planning 
may have on the Commonwealth and Territory limit on Federal payments 
under section 1108 of the Act, we believe the Commonwealths and 
Territories have two options for claiming for such expenditures. Under 
the first option, the Commonwealths/Territories could claim FFP for 
family planning at the ``regular'' Medicaid FMAP rates associated with 
such expenditures (90 percent). Under this option, the Federal payments 
would not apply against the Commonwealth/Territory CHIP allotment, but 
would apply against the Commonwealth/Territory limit established under 
section 1108 of the Act.
    Under the second option, the Commonwealths/Territories could choose 
to claim FFP for family planning (provided to the CHIP related Medicaid 
expansion groups) at the enhanced FMAP (which is lower than the regular 
Federal matching rate for such expenditures). Under this option, the 
Federal payments available at the enhanced FMAP rate would apply 
against the Commonwealth/Territory CHIP allotment, but would not apply 
against the Commonwealth/Territory limit under section 1108 of the Act.
3. Family Planning Expenditures Based on Presumptive Eligibility Under 
Section 1920A of the Act
    As indicated in section II. J. 2. above, under the Medicaid program 
the title XIX Federal matching rates for States' family planning 
provided to CHIP related Medicaid expansion groups are not the enhanced 
FMAP rates, but rather are the regular Medicaid FMAP rates associated 
with such expenditures: 90 percent. Furthermore, as amended by section 
4911(a) of the BBA, the Federal matching rate for expenditures made on 
the basis of the presumptive eligibility provisions of section 1920A of 
the Act may not be at the enhanced FMAP. Therefore, with respect to 
family planning and IHS expenditures provided on the basis of a section 
1920A presumptive eligibility determination, the only available Federal 
matching rates would be 90 and 100 percent. Therefore, the options 
offered under section 2 above are not available if the basis for the 
expenditures is the section 1920A presumptive eligibility provisions. 
In such case, in the Commonwealths and Territories, the Federal 
payments are at the ``regular'' Medicaid FMAP rate associated with such 
expenditures; such payments are not applied against the CHIP allotment; 
and such payments would be applicable against the section 1108 
Commonwealth/Territorial limit.

III. Regulatory Impact Statement

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866, the Unfunded Mandate Reform Act of 1995 (Pub. L. 
104-4), and the Regulatory Flexibility Act (RFA) (Pub. L. 96-354). 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, when regulations are 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic environments, public health and safety, 
other advantages, distributive impacts, and equity). In addition, a 
Regulatory Impact Analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more annually).
    The Unfunded Mandates Reform Act of 1995 requires that agencies 
prepare an assessment of anticipated costs and benefits before 
proposing any rule that may result in an annual expenditure by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100,000,000 or more (adjusted annually for inflation). 
Because participation in the CHIP program on the part of States is 
voluntary, any payments and expenditures States make or incur on behalf 
of the program that are not reimburse by the federal government are 
made voluntarily. These regulations would implement narrowly defined 
statutory language on the allocation of funds for CHIP and will not 
create unfunded mandate on States, tribal or local governments. 
Therefore we are not required to perform an assessment of the costs and 
benefits of these regulations.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis for any proposed rule that may have a 
significant impact on the operations of a substantial number of small 
rural hospitals. Such an analysis must conform to the provisions of 
section 604 of the RFA. With the

[[Page 10426]]

exception of hospitals located in certain rural counties adjacent to 
urban areas, for purposes of section 1102(b) of the Act, we define a 
small rural hospital as a hospital that is located outside of a 
Metropolitan Statistical Area and has fewer than 50 beds.
    This proposed rule sets forth the methodologies and procedures to 
determine the Federal fiscal year allotments of Federal funds available 
to individual States, Commonwealths and Territories for the new State 
CHIP established under title XXI of the Social Security Act. This rule 
would also establish in regulations the payment and grant award process 
that will be used for the States, the Commonwealths and Territories to 
claim and receive FFP for expenditures under the State CHIP and related 
Medicaid program provisions.
    Budget authority for title XXI is statutorily specified in section 
2104(a) of the BBA with additional money authorized in Pub. L. 105-100. 
The total national amount available for allotment to the 50 States, the 
District of Columbia, and the Commonwealths and Territories for the 
life of CHIP, is established as follows:

                       Total Amount of Allotments
------------------------------------------------------------------------
                         Year                                Amount
------------------------------------------------------------------------
1998.................................................     $4,235,000,000
1999.................................................      4,215,000,000
2000.................................................      4,215,000,000
2001.................................................      4,215,000,000
2002.................................................      3,090,000,000
2003.................................................      3,090,000,000
2004.................................................      3,150,000,000
2005.................................................      4,050,000,000
2006.................................................      4,050,000,000
2007.................................................      5,000,000,000
------------------------------------------------------------------------

    The spending levels shown in the table above are based entirely on 
the spending and allocation formulas contained in the statute. The 
Secretary has no discretion over these spending levels and initial 
allotments of funds allocated to States. In addition, under Pub. L. 
105-277, an additional $32 million was appropriated for allotment only 
to the Commonwealths and Territories, and only for FY 1999.
    Administrative resources needed in HCFA's Program Management 
account to carry out the new responsibilities of the Children's Health 
Insurance Program have been estimated at $10.1 million. This estimate 
has been included in the baseline of HCFA's FY 1999 President's Budget 
to Congress.
    For these reasons, we are not preparing an analysis for either the 
RFA or section 1102(b) of the Act because we have determined, and we 
certify, that this rule will not have a significant economic impact on 
a substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 
requires that we solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
     The accuracy of the agency's estimate of the information 
collection burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    Therefore, we are soliciting public comment on each of these issues 
for the information collection requirements discussed below.

Section 457.226  Fiscal Policies and Accountability

    A State plan must provide that the State CHIP agency and, where 
applicable, local agencies administering the plan will; (a) maintain 
supporting fiscal records to assure that claims for Federal funds are 
in accord with applicable Federal requirements, (b) retain records for 
3 years from date of submission of a final expenditure report, (c) 
maintain records beyond the 3-year period if audit findings have not 
been resolved, and (d) retain certain records for nonexpendable 
property acquired under a Federal grant for 3 years from the date of 
final disposition of that property.
    We have determined that these record keeping requirements meet the 
criteria set forth in 5 CFR 1320.3, (b)(2) and (b)(3) (usual and 
customary burden). Therefore, there is no burden imposed by these 
requirements.

Section 457.234  State Plan Requirements

    A State plan must describe the policy and the methods to be used in 
setting payment rates for each type of service included in the State's 
CHIP program.
    The burden associated with this requirement is captured pursuant to 
the completion of HCFA collection, HCFA-R-211, approved under OMB 
number 0938-0707.

Section 457.238  Documentation of Payment Rates

    The CHIP agency must maintain documentation of payment rates and 
make it available to HHS upon request.
    We have determined that these record keeping requirements meet the 
criteria set forth in 5 CFR 1320.3, (b)(2) and (b)(3) (usual and 
customary burden). Therefore, there is no burden imposed by these 
requirements.

Section 457.606  Conditions for State Allotments and Federal Payments 
for a Fiscal Year

    In order to receive a State allotment for a fiscal year, a State 
must have a State child health plan submitted in accordance with 
section 2106 of the Act and approved by the end of the fiscal year.
    The burden associated the submission of the State Child Health Plan 
is currently captured pursuant to the completion of the HCFA-R-211, 
approved under OMB number 0938-0707.

Section 457.614  General Payment Process

    In order to receive Federal financial participation for a State's 
claims for payment for the State's expenditures, a State must submit 
budget estimates of quarterly funding requirements for Medicaid and the 
Children's Health Insurance Programs and submit an expenditure report.
    The burden associated with these reporting requirements are 
currently captured pursuant to the completion of HCFA collections, 
HCFA-21, HCFA-37, and HCFA-64. Respectively, the OMB control numbers 
for these collections are 0938-0731, 0938-0101, and 0938-0067.

Section 457.630  Grants Procedures

    A State must submit a budget request in an appropriate format for 
the first 3 quarters of the fiscal year. In addition a State must 
submit a budget request for the fourth quarter of the fiscal year.
    The State Children's Health Insurance Program agency must submit 
Form HCFA-21B (Children's Health Insurance Program Budget Report for 
Children's

[[Page 10427]]

Health Insurance Program State expenditures) to the HCFA central office 
(with a copy to the HCFA regional office) 45 days before the beginning 
of each quarter.
    The State must submit Form HCFA-64 (Quarterly Medicaid Statement of 
Expenditures for the Medical Assistance Program) and Form HCFA-21 
(Quarterly Children's Health Insurance Program Statement of 
Expenditures for title XXI), to central office (with a copy to the 
regional office) not later than 30 days after the end of the quarter.
    The burden associated with these reporting requirements are 
currently captured pursuant to the completion of HCFA collections, 
HCFA-21, HCFA-37, and HCFA-64. Respectively, the OMB control numbers 
for these collections are 0938-0731, 0938-0101, and 0938-0067.
    We have submitted a copy of this proposed rule to OMB for its 
review of the information collection requirements in Secs. 457.226, 
457.234, 457.238, 457.606, 457.614, and 457.630.
    Organizations and individuals desiring to submit comments on the 
information collection and recordkeeping requirements should direct 
them to the OMB official and HCFA/OIS whose names appear in the 
ADDRESSES section of this preamble.

VI. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATE 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

List of Subjects

42 CFR Part 447

    Accounting, Administrative practice and procedure, Drugs, Grant 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 457

    Administrative practice and procedure, Grant programs-health, 
Children's Health Insurance Program, Reporting and recordkeeping 
requirements.

45 CFR Part 92

    Accounting, Grant programs, Indians, Intergovernmental relations, 
Reporting recordkeeping requirements.

45 CFR Part 95

    Claims, Computer technology, Grant programs--Health, Grant 
programs--social programs, Reporting and recordkeeping requirements.
    42 CFR chapter IV, would be amended as set forth below:
    A. 42 CFR part 447 is amended as follows:

PART 447--PAYMENTS FOR SERVICES

    1. The authority citation continues to read as follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

    2. Section 447.88 is added to read as follows:

Subpart A--Payments: General Provisions


Sec. 447.88  Options for claiming FFP payment for section 1920A 
presumptive eligibility medical assistance payments.

    (a) The FMAP rate for medical assistance payments made available to 
a child during a presumptive eligibility period under section 1920A of 
the Act is the regular FMAP under title XIX, based on the category of 
medical assistance; that is, the enhanced FMAP is not available for 
section 1920A presumptive eligibility expenditures.
    (b) States have the following 3 options for identifying Medicaid 
section 1920A presumptive eligibility expenditures and the application 
of payments for those expenditures:
    (1) A State may identify Medicaid section 1920A presumptive 
eligibility expenditures in the quarter expended with no further 
adjustment based on the results of a subsequent actual eligibility 
determination (if any).
    (2) A State may identify Medicaid section 1920A presumptive 
eligibility expenditures in the quarter expended but may adjust 
reported expenditures based on results of the actual eligibility 
determination (if any) to reflect the actual eligibility status of the 
individual, if other than presumptively eligible.
    (3) A State may elect to delay submission of claims for payments of 
section 1920A presumptive eligibility expenditures until after the 
actual eligibility determination (if any) is made and, at that time 
identify such expenditures based on the actual eligibility status of 
individuals if other than presumptively eligible. At that time, the 
State would, as appropriate, recategorize the medical assistance 
expenditures made during the section 1920A presumptive eligibility 
period based on the results of the actual eligibility determination, 
and claim them appropriately.
    B. Subchapter D is redesignated as subchapter F--PEER REVIEW 
ORGANIZATIONS; Parts 462, 466, 473, and 476 are redesignated as parts 
475, 476, 478 and 480, respectively; and the section numbers are 
revised to conform to the new parts numbers.
    C. Subchapter E is redesignated as subchapter G--STANDARDS AND 
CERTIFICATION with no changes in part designations.
    D. A new subchapter D--CHILDREN'S HEALTH INSURANCE PROGRAMS, 
consisting of part 457, is added to read as follows:

SUBCHAPTER D--CHILDREN'S HEALTH INSURANCE PROGRAMS (CHIPs)

PART 457--ALLOTMENTS AND GRANTS TO STATES

Subpart A--[Reserved]

Subpart B--General Administration--Reviews and Audits; Withholding for 
Failure To Comply; Deferral and Disallowance of Claims; Reduction of 
Federal Medical Payments

Sec.
457.200  Program reviews.
457.202  Audits.
457.204  Withholding of payment for failure to comply with Federal 
requirements.
457.206  Administrative appeals under the State CHIP.
457.208  Judicial review.
457.210  Deferral of claims for FFP.
457.212  Disallowance of claims for FFP.
457.216  Treatment of uncashed or canceled (voided State CHIP) 
checks.
457.218  Repayment of Federal funds by installments.
457.220  Public funds as the State share of financial participation.
457.222  FFP for equipment.
457.224  FFP: Conditions relating to cost sharing.
457.226  Fiscal policies and accountability.
457.228  Cost allocation.
457.230  FFP for State ADP expenditures.
457.232  Refunding of Federal share of CHIP overpayments to 
providers and referral of allegations of waste, fraud or abuse of 
the Office of Inspector General.
457.234  State plan requirements.
457.236  Audit of records.
457.238  Documentation of payment rates.

Subparts C through E--[Reserved]

Subpart F--Payment to States

457.600  Purpose and basis of this subpart.
457.602  Applicability.
457.606  Conditions for State allotments and Federal payments for a 
fiscal year.
457.608  Process and calculation of State allotments for a fiscal 
year.
457.610  Period of availability for State allotments for a fiscal 
year.
457.614  General payment process.
457.616  Application and tracking of payments against the fiscal 
year allotments.

[[Page 10428]]

457.618  Ten percent limit on certain Children's Health Insurance 
program expenditures.
457.622  Rate of FFP for State expenditures.
457.624  Limitations on certain payments for certain expenditures.
457.626  Prevention of duplicate payments.
457.628  Other applicable Federal regulations.
457.630  Grants procedures.

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart A--[Reserved]

Subpart B--General Administration--Reviews and Audits; Withholding 
for Failure To Comply; Deferral and Disallowance of Claims; 
Reduction of Federal Medical Payments


Sec. 457.200  Program reviews.

    (a) Review of State and local administration of the State CHIP 
plan. In order to determine whether the State is complying with the 
Federal requirements and the provisions of its plan, HCFA reviews State 
and local administration of the State CHIP plan through analysis of the 
State's policies and procedures, on-site reviews of selected aspects of 
agency operation, and examination of samples of individual case 
records.
    (b) Action on review findings. If Federal or State reviews reveal 
serious problems with respect to compliance with any Federal or State 
plan requirement, the State must correct its practice accordingly.


Sec. 457.202  Audits.

    (a) Purpose. The Department's Office of Inspector General (OIG) 
periodically audits State operations in order to determine whether --
    (1) The program is being operated in a cost-efficient manner; and
    (2) Funds are being properly expended for the purposes for which 
they were appropriated under Federal and State law and regulations.
    (b) Reports. (1) The OIG releases audit reports simultaneously to 
State officials and the Department's program officials.
    (2) The reports set forth OIG opinion and recommendations regarding 
the practices it reviewed, and the allowability of the costs it 
audited.
    (3) Cognizant officials of the Department make final determinations 
on all audit findings.
    (c) Action on audit exceptions. (1) Concurrence or clearance. The 
State agency has the opportunity of concurring in the exceptions or 
submitting additional facts that support clearance of the exceptions.
    (2) Appeal. Any exceptions that are not disposed of under 
paragraph(c)(1) of this section are included in a disallowance letter 
that constitutes the Department's final decision unless the State 
requests reconsideration by the Appeals Board. (Specific rules are set 
forth in Sec. 457.212.)
    (3) Adjustment. If the decision by the Board requires an adjustment 
of FFP, either upward or downward, a subsequent grant award promptly 
reflects the amount of increase or decrease.


Sec. 457.204  Withholding of payment for failure to comply with Federal 
requirements.

    (a) Basis for withholding. HCFA withholds payments to the State, in 
whole or in part, only if, after giving the State notice, a reasonable 
opportunity for correction, and an opportunity for a hearing, the 
Administrator finds--
    (1) That the plan is in substantial noncompliance with the 
requirements of title XXI of the Act; or
    (2) That the State is conducting its program in substantial 
noncompliance with either the State plan or the requirements of title 
XXI of the Act.

(Hearings are generally not called until a reasonable effort has been 
made to resolve the issues through conferences and discussions. These 
efforts may be continued even if a date and place have been set for the 
hearing.)

    (b) Noncompliance of the plan. A question of noncompliance of a 
State plan may arise from an unapprovable change in the approved State 
plan or the failure of the State to change its approved plan to conform 
to a new Federal requirement for approval of State plans.
    (c) Noncompliance in practice. A question of noncompliance in 
practice may arise from the State's failure to actually comply with a 
Federal requirement, regardless of whether the plan itself complies 
with that requirement.
    (d) Notice, reasonable opportunity for correction, and 
implementation of withholding. If the Administrator makes a finding of 
noncompliance under paragraph (a) of this section, the following steps 
apply:
    (1) Preliminary notice. The Administrator provides a preliminary 
notice to the State--
    (i) Of the findings of noncompliance;
    (ii) The proposed enforcement actions to withhold payments; and
    (iii) If enforcement action is proposed, that the State has a 
reasonable opportunity for correction, described in paragraph (d)(2) of 
this section, before the Administrator takes final action.
    (2) Opportunity for corrective action. 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.
    (3) Final notice. Taking into account any evidence submitted by the 
State under paragraph (d)(2) of this section, the Administrator makes a 
final determination related to the findings of noncompliance, and 
provides a final notice to the State--
    (i) Of the final determination on the findings of noncompliance;
    (ii) If enforcement action is appropriate--
    (A) No further payments will be made to the State (or that payments 
will be made only for those portions or aspects of the programs that 
are not affected by the noncompliance); and
    (B) The total or partial withholding will continue until the 
Administrator is satisfied that the State's plan and practice are, and 
will continue to be, in compliance with Federal requirements.
    (4) Hearing. An opportunity for a hearing will be provided to the 
State prior to withholding under paragraph (d)(5) of this section.
    (5) Withholding. HCFA withholds payments, in whole or in part, 
until the Administrator is satisfied regarding the State's compliance.


Sec. 457.206  Administrative appeals under the State CHIP.

    Three distinct types of determinations are subject to Departmental 
reconsideration upon request by a State.
    (a) Compliance with Federal requirements. A determination that a 
State's plan or proposed plan amendments, or its practice under the 
plan do not meet (or continue to meet) Federal requirements are subject 
to the hearing provisions of 42 CFR part 430, subpart D of this 
chapter.
    (b) FFP in State CHIP expenditures. Disallowances of FFP in State 
CHIP expenditures (mandatory grants) are subject to Departmental 
reconsideration by the Departmental Appeals Board (the Board) in 
accordance with procedures set forth in 45 CFR part 16.
    (c) Discretionary grants disputes. Determinations listed in 45 CFR 
part 16, appendix A, pertaining to discretionary grants, such as grants 
for special demonstration projects under section 1115 of the Act, that 
may be awarded to a State CHIP agency, are subject to reconsideration 
by the Departmental Grant Appeals Board.


Sec. 457.208  Judicial review.

    (a) Right to judicial review. Any State dissatisfied with the 
Administrator's final determination on approvability of plan material 
or compliance with

[[Page 10429]]

Federal requirements (Sec. 457.204) has a right to judicial review.
    (b) Petition for review. (1) The State must file a petition for 
review with the U.S. Court of Appeals for the circuit in which the 
State is located, within 60 days after it is notified of the 
determination.
    (2) After the clerk of the court files a copy of the petition with 
the Administrator, the Administrator files in the court the record of 
the proceedings on which the determination was based.
    (c) Court action. (1) The court is bound by the Administrator's 
findings of fact, if they are supported by substantial evidence.
    (2) The court has jurisdiction to affirm the Administrator's 
decision, to set it aside in whole or in part, or, for good cause, to 
remand the case for additional evidence.
    (d) Response to remand. (1) If the court remands the case, the 
Administrator may make new or modified findings of fact and may modify 
his or her previous determination.
    (2) The Administrator certifies to the court the transcript and 
record of the further proceedings.
    (e) Review by the Supreme Court. The judgment of the appeals court 
is subject to review by the U.S. Supreme Court upon certiorari or 
certification, as provided in 28 U.S.C. 1254.


Sec. 457.210  Deferral of claims for FFP.

    (a) Requirements for deferral. Payment of a claim or any portion of 
a claim for FFP is deferred only if--
    (1) The Regional Administrator or the Administrator questions its 
allowability and needs additional information in order to resolve the 
question; and
    (2) HCFA takes action to defer the claim (by excluding the claimed 
amount from the grant award) within 60 days after the receipt of a 
Quarterly Statement of Expenditures (prepared in accordance with HCFA 
instructions) that includes that claim.
    (b) Notice of deferral and State's responsibility. (1) Within 15 
days of the action described in paragraph (a)(2) of this section, the 
Regional Administrator sends the State a written notice of deferral 
that--
    (i) Identifies the type and amount of the deferred claim and 
specifies the reason for deferral; and
    (ii) Requests the State to make available all the documents and 
materials the HCFA regional office believes are necessary to determine 
the allowability of the claim.
    (2) It is the responsibility of the State to establish the 
allowability of a deferred claim.
    (c) Handling of documents and materials. (1) Within 60 days (or 
within 120 days if the State requests an extension) after receipt of 
the notice of deferral, the State must make available to the HCFA 
regional office, in readily reviewable form, all requested documents 
and materials except any that it identifies as not being available.
    (2) HCFA regional office staff initiates review within 30 days 
after receipt of the documents and materials.
    (3) If the Regional Administrator finds that the materials are not 
in readily reviewable form or that additional information is needed, he 
or she promptly notifies the State that it has 15 days to submit the 
readily reviewable or additional materials.
    (4) If the State does not provide the necessary materials within 15 
days, the Regional Administrator disallows the claim.
    (5) The Regional Administrator has 90 days, after all documentation 
is available in readily reviewable form, to determine the allowability 
of the claim.
    (6) If the Regional Administrator cannot complete review of the 
material within 90 days, HCFA pays the claim, subject to a later 
determination of allowability.
    (d) Effect of decision to pay a deferred claim. Payment of a 
deferred claim under paragraph (c)(6) of this section does not preclude 
a subsequent disallowance based on the results of an audit or financial 
review. (If there is a subsequent disallowance, the State may request 
reconsideration as provided in paragraph (e)(2) of this section.)
    (e) Notice and effect of decision on allowability. (1) The Regional 
Administrator or the Administrator gives the State written notice of 
his or her decision to pay or disallow a deferred claim.
    (2) If the decision is to disallow, the notice informs the State of 
its right to reconsideration in accordance with 45 CFR part 16.


Sec. 457.212  Disallowance of claims for FFP.

    (a) Notice of disallowance and of right to reconsideration. When 
the Regional Administrator or the Administrator determines that a claim 
or portion of claim is not allowable, he or she promptly sends the 
State a disallowance letter that includes the following, as 
appropriate:
    (1) The date or dates on which the State's claim for FFP was made.
    (2) The time period during which the expenditures in question were 
made or claimed to have been made.
    (3) The date and amount of any payment or notice of deferral.
    (4) A statement of the amount of FFP claimed, allowed, and 
disallowed and the manner in which these amounts were computed.
    (5) Findings of fact on which the disallowance determination is 
based or a reference to other documents previously furnished to the 
State or included with the notice (such as a report of a financial 
review or audit) that contain the findings of fact on which the 
disallowance determination is based.
    (6) Pertinent citations to the law, regulations, guides and 
instructions supporting the action taken.
    (7) A request that the State make appropriate adjustment in a 
subsequent expenditure report.
    (8) Notice of the State's right to request reconsideration of the 
disallowance and the time allowed to make the request.
    (9) A statement indicating that the disallowance letter is the 
Department's final decision unless the State requests reconsideration 
under paragraph (b)(2) of this section.
    (b) Reconsideration of FFP disallowance. (1) The Departmental 
Appeals Board reviews disallowances of FFP under title XXI.
    (2) A State may request reconsideration with a request to the 
Chair, Departmental Appeals Board, within 30 days after receipt of the 
disallowance letter, which must include--
    (i) A copy of the disallowance letter;
    (ii) A statement of the amount in dispute; and
    (iii) A brief statement of why the disallowance is wrong.
    (c) Reconsideration procedures. The reconsideration procedures are 
those set forth in 45 CFR part 16.
    (d) Implementation of decisions. If the reconsideration decision 
requires an adjustment of FFP, either upward or downward, a subsequent 
grant award promptly reflects the amount of increase or decrease.


Sec. 457.216  Treatment of uncashed or canceled (voided State CHIP) 
checks.

    (a) Purpose. This section provides rules to ensure that States 
refund the Federal portion of uncashed or canceled (voided) checks 
under title XXI.
    (b) Definitions. As used in this section--
    Canceled (voided) check means a CHIP check issued by a State or 
fiscal agent that prior to its being cashed is canceled (voided) by the 
State or fiscal agent, thus preventing disbursement of funds.
    Fiscal agent means an entity that processes or pays vendor claims 
for the State CHIP agency.

[[Page 10430]]

    Uncashed check means a CHIP check issued by a State or fiscal agent 
that has not been cashed by the payee.
    Warrant means an order by which the State CHIP agency or local 
agency without the authority to issue checks recognizes a claim. 
Presentation of a warrant by the payee to a State officer with 
authority to issue checks will result in release of funds due.
    (c) Refund of Federal financial participation (FFP) for uncashed 
checks--(1) General provisions. If a check remains uncashed beyond a 
period of 180 days from the date it was issued; that is, the date of 
the check, it is no longer regarded as an allowable program 
expenditure. If the State has claimed and received FFP for the amount 
of the uncashed check, it must refund the amount of FFP received.
    (2) Report of refund. At the end of each calendar quarter, the 
State agency must identify those checks that remain uncashed beyond a 
period of 180 days after issuance. The State CHIP agency must refund 
all FFP that it received for uncashed checks by adjusting the Quarterly 
Statement of Expenditures for that quarter. If an uncashed check is 
cashed after the refund is made, the State may file a claim. The claim 
will be considered to be an adjustment to the costs for the quarter in 
which the check was originally claimed. This claim will be paid if 
otherwise allowed by the Act and the regulations issued in accordance 
with the Act.
    (3) If the State does not refund the appropriate amount as 
specified in paragraph (c)(2) of this section, the amount will be 
disallowed.
    (d) Refund of FFP for canceled (voided) checks--(1) General 
provisions. If the State has claimed and received FFP for the amount of 
a canceled (voided) check, it must refund the amount of FFP received.
    (2) Report of refund. At the end of each calendar quarter, the 
State CHIP agency must identify those checks that were canceled 
(voided). The State must refund all FFP that it received for canceled 
(voided) checks by adjusting the Quarterly Statement of Expenditures 
for that quarter.
    (3) If the State does not refund the appropriate amount as 
specified in paragraph (d)(2) of this section, the amount will be 
disallowed.


Sec. 457.218  Repayment of Federal funds by installments.

    (a) Basic conditions. When Federal payments have been made for 
claims that are later found to be unallowable, the State may repay the 
Federal Funds by installments if the following conditions are met:
    (1) The amount to be repaid exceeds 2\1/2\ percent of the estimated 
or actual annual State share for the State CHIP program; and
    (2) The State has given the Regional Administrator written notice, 
before total repayment was due, of its intent to repay by installments.
    (b) Annual State share determination. HCFA determines whether the 
amount to be repaid exceeds 2\1/2\ percent of the annual State share as 
follows:
    (1) If the State CHIP program is ongoing, HCFA uses the annual 
estimated State share of State CHIP expenditures. This is the sum of 
the estimated State shares for four consecutive quarters, beginning 
with the quarter in which the first installment is to be paid, as shown 
on the State's latest HCFA-21B form.
    (2) If the State CHIP program has been terminated by Federal law or 
by the State, HCFA uses the actual State share. The actual State share 
is that shown on the State's Quarterly Statement of Expenditures 
reports for the last four quarters before the program was terminated.
    (c) Repayment amounts, schedules, and procedures--(1) Repayment 
amount. The repayment amount may not include any amount previously 
approved for installment repayment.
    (2) Repayment schedule. The number of quarters allowed for 
repayment is determined on the basis of the ratio of the repayment 
amount to the annual State share of State CHIP expenditures. The higher 
the ratio of the total repayment amount is to the annual State share, 
the greater the number of quarters allowed, as follows:

------------------------------------------------------------------------
                                                             Number of
 Total repayment amount as percentage of State share of     quarters to
           annual expenditures for State CHIP                  make
                                                             repayment
------------------------------------------------------------------------
2.5 percent or less.....................................               1
Greater than 2.5, but not greater than 5................               2
Greater than 5, but not greater than 7.5................               3
Greater than 7.5, but not greater than 10...............               4
Greater than 10, but not greater than 15................               5
Greater than 15, but not greater than 20................               6
Greater than 20, but not greater than 25................               7
Greater than 25, but not greater than 30................               8
Greater than 30, but not greater than 47.5..............               9
Greater than 47.5, but not greater than 65..............              10
Greater than 65, but not greater than 82.5..............              11
Greater than 82.5, but not greater than 100.............              12
------------------------------------------------------------------------

    (3) Quarterly repayment amounts. The quarterly repayment amounts 
for each of the quarters in the repayment schedule may not be less than 
the following percentages of the estimated State share of the annual 
expenditures for State CHIP:

------------------------------------------------------------------------
                                                             Repayment
                                                            installment
                                                            may not be
           For each of the following quarters                less than
                                                               these
                                                            percentages
------------------------------------------------------------------------
1 to 4..................................................             2.5
5 to 8..................................................             5.0
9 to 12.................................................            17.5
------------------------------------------------------------------------

    (4) Extended schedule. The repayment schedule may be extended 
beyond 12 quarterly installments if the total repayment amount exceeds 
100 percent of the estimated State share of annual expenditures. In 
these circumstances, the repayment schedule in paragraph (c)(2) of this 
section is followed for repayment of the amount equal to 100 percent of 
the annual State share. The remaining amount of the repayment is in 
quarterly amounts equal to not less than 17.5 percent of the estimated 
State share of annual expenditures.

[[Page 10431]]

    (5) Repayment process. Repayment is accomplished through adjustment 
in the quarterly grants over the period covered by the repayment 
schedule. If the State chooses to repay amounts representing higher 
percentages during the early quarters, any corresponding reduction in 
required minimum percentages is applied first to the last scheduled 
payment, then to the next to the last payment, and so forth as 
necessary.
    (6) Offsetting of retroactive claims. (i) The amount of a 
retroactive claim to be paid a State is offset against any amounts to 
be, or already being, repaid by the State in installments. Under this 
provision, the State may choose to:
    (A) Suspend payments until the retroactive claim due the State has, 
in fact, been offset; or
    (B) Continue payments until the reduced amount of its debt 
(remaining after the offset), has been paid in full. This second option 
would result in a shorter payment period.
    (ii) A retroactive claim for the purpose of this regulation is a 
claim applicable to any period ending 12 months or more before the 
beginning of the quarter in which HCFA would pay that claim.


Sec. 457.220  Public funds as the State share of financial 
participation.

    (a) Public funds may be considered as the State's share in claiming 
FFP if they meet the conditions specified in paragraphs (b) and (c) of 
this section.
    (b) The public funds are appropriated directly to the State or 
local State CHIP agency, or transferred from other public agencies 
(including Indian tribes) to the State or local agency and under its 
administrative control, or certified by the contributing public agency 
as representing expenditures eligible for FFP under this section.
    (c) The public funds are not Federal funds, or are Federal funds 
authorized by the Federal law to be used to match other Federal funds.


Sec. 457.222  FFP for equipment.

    Claims for Federal financial participation in the cost of equipment 
under the State CHIP are determined in accordance with subpart G of 45 
CFR part 95. Requirements concerning the management and disposition of 
equipment under the State CHIP Program are also prescribed in subpart G 
of 45 CFR part 95.


Sec. 457.224  FFP: Conditions relating to cost sharing.

    (a) No FFP is available for the following amounts, even when 
related to services or benefit coverage which is or could be provided 
under a State CHIP program--
    (1) Any cost sharing amounts that beneficiaries should have paid as 
enrollment fees, premiums, deductibles, coinsurance, copayments, or 
similar charges.
    (2) Any amounts paid by the agency for health benefits coverage or 
services furnished to individuals who would not be eligible for that 
coverage or those services under the approved State child health plan, 
whether or not the individual paid any required premium or enrollment 
fee.
    (b) The amount of expenditures under the State child health plan 
must be reduced by the amount of any premiums and other cost-sharing 
received by the State.


Sec. 457.226  Fiscal policies and accountability.

    A State plan must provide that the State CHIP agency and, where 
applicable, local agencies administering the plan will--
    (a) Maintain an accounting system and supporting fiscal records to 
assure that claims for Federal funds are in accord with applicable 
Federal requirements;
    (b) Retain records for 3 years from date of submission of a final 
expenditure report;
    (c) Retain records beyond the 3-year period if audit findings have 
not been resolved; and
    (d) Retain records for nonexpendable property acquired under a 
Federal grant for 3 years from the date of final disposition of that 
property.


Sec. 457.228  Cost allocation.

    A State plan must provide that the single or appropriate State CHIP 
Agency will have an approved cost allocation plan on file with the 
Department in accordance with the requirements contained in subpart E 
of 45 CFR part 95. Subpart E also sets forth the effect on FFP if the 
requirements contained in that subpart are not met.


Sec. 457.230  FFP for State ADP expenditures.

    FFP is available for State ADP expenditures for the design, 
development, or installation of mechanized claims processing and 
information retrieval systems and for the operation of certain systems. 
Additional HHS regulations and HCFA procedures regarding the 
availability of FFP for ADP expenditures are in 45 CFR part 74, 45 CFR 
part 95, subpart F, and part 11, State Medicaid Manual.


Sec. 457.232  Refunding of Federal Share of CHIP overpayments to 
providers and referral of allegations of waste, fraud or abuse to the 
Office of Inspector General.

    (a) Quarterly Federal payments to the States under title XXI (CHIP) 
of the Act are to be reduced or increased to make adjustment for prior 
overpayments or underpayments that the Secretary determines have been 
made.
    (b) The Secretary will consider the pro rata Federal share of the 
net amount recovered by a State during any quarter to be an 
overpayment.
    (c) Allegations or indications of waste fraud and abuse with 
respect to the CHIP program shall be referred promptly to the Office of 
Inspector General.


Sec. 457.234  State plan requirements.

    The State plan is a comprehensive written statement submitted by 
the agency describing the nature and scope of its Children's Health 
Insurance Program and giving assurance that it will be administered in 
conformity with the specific requirements of title XXI, the applicable 
regulations in Chapter IV, and other applicable official issuance of 
the Department. The State plan contains all information necessary for 
HCFA to determine whether the plan can be approved to serve as a basis 
for FFP in the State plan program.


Sec. 457.236  Audits.

    The CHIP agency must assure appropriate audit of records on costs 
of provider services.


Sec. 457.238  Documentation of payment rates.

    The CHIP agency must maintain documentation of payment rates and 
make it available to HHS upon request.

Subparts C Through E--[Reserved]

Subpart F--Payments to States


Sec. 457.600  Purpose and basis of this subpart.

    This subpart interprets and implements--
    (a) Section 2104 of the Act which specifies the total allotment 
amount available for allotment to each State for child health 
assistance for fiscal years 1998 through 2007, the formula for 
determining each State allotment for a fiscal year, including the 
Commonwealth and Territories, and the amounts of payments for 
expenditures that are applied to reduce the State allotments.
    (b) Section 2105 of the Act which specifies the provisions for 
making payment to States, the limitations and conditions on such 
payments, and the

[[Page 10432]]

calculation of the enhanced Federal medical assistance percentage.


Sec. 457.602  Applicability.

    The provisions of this subpart apply to the 50 States and the 
District of Columbia, and the Commonwealths and Territories.


Sec. 457.606  Conditions for State allotments and Federal payments for 
a fiscal year.

    (a) Basic conditions. In order to receive a State allotment for a 
fiscal year, a State must have a State child health plan submitted in 
accordance with section 2106 of the Act, and
    (1) For fiscal years 1998 and 1999, the State child health plan 
must be approved before October 1, 1999;
    (2) For fiscal years after 1999, the State child health plan must 
be approved by the end of the fiscal year;
    (3) An allotment for a fiscal year is not available to a State 
prior to the beginning of the fiscal year; and
    (4) Federal payments out of an allotment are based on State 
expenditures which are allowable under the approved State child health 
plan.
    (b) Federal payments for States' Children's Health Insurance 
program (CHIP) expenditures under an approved State child health plan 
are--
    (1) Limited to the amount of available funds remaining in State 
allotments calculated in accordance with the allotment process and 
formula specified in Secs. 457.608 and 457.610, and payment process in 
Secs. 457.614 and 457.616.
    (2) Available based on a percentage of State CHIP expenditures, at 
a rate equal to the enhanced Federal medical assistance percentage 
(FMAP) for each fiscal year, calculated in accordance with 
Sec. 457.622.
    (3) Available through the grants process specified in Sec. 457.630.


Sec. 457.608  Process and calculation of State allotments for a fiscal 
year.

    (a) General. (1) State allotments are determined by HCFA for each 
State and the District of Columbia with an approved State child health 
plan, as described in paragraph (d) of this section, and for each 
Commonwealth and Territory, as described in paragraph (f) of this 
section.
    (2) In order to determine each State allotment, HCFA determines the 
national total allotment amount for each fiscal year available to the 
50 States and the District of Columbia, as described in paragraph (b) 
of this section, and the total allotment amount available for each 
fiscal year for allotment to the Commonwealths and Territories, as 
described in paragraph (c) of this section.
    (b) National total allotment amount for the 50 States and the 
District of Columbia. (1) The national total allotment amount available 
for allotment to the 50 States and the District of Columbia is 
determined by subtracting the following 3 amounts in the following 
order from the total appropriation specified in section 2104(a) of the 
Act for the fiscal year--
    (i) The total allotment amount available for allotment for each 
fiscal year to the Commonwealths and Territories, as determined in 
paragraph (c)(1) of this section;
    (ii) The total amount of the grant for the fiscal year for children 
with Type I Diabetes under section 4921 of Pub. L. 105-33. This is 
$30,000,000 for each of the fiscal years 1998 through 2002; and
    (iii) The total amount of the grant for the fiscal year for 
diabetes programs for Indians under section 4922 of Pub. L. 105-33. 
This is $30,000,000 for each of the fiscal years 1998 through 2002.
    (2) The formula below illustrates the calculation of the national 
total allotment amount for a fiscal year available for allotment to the 
50 States and the District of Columbia:

ATA = S2104(a) - T2104(c) 
-D4921 - D4922

ATA = National total allotment amount available for 
allotment to the 50 States and the District of Columbia for the fiscal 
year.
S2104(a) = Total appropriation for the fiscal year indicated 
in section 2104(a) of the Act.
T2104(c) = Total allotment amount for a fiscal year 
available for allotment to the Commonwealths and Territories; as 
determined under paragraph (c)(1) of this section.
D4921 = Amount of total grant for children with Type I 
Diabetes under section 4921 of Pub. L. 105-33. This is $30,000,000 for 
each of the fiscal years 1998 through 2002.
D4922 = Amount of total grant for diabetes programs for 
Indians under section 4922 of Pub. L. 105-33. This is $30,000,000 for 
each of the fiscal years 1998 through 2002.

    (c) Total allotment amount available to the Commonwealths and the 
Territories.--(1) General.--The total allotment amount available to all 
the Commonwealths and Territories equals .25 percent of the total 
appropriation for the fiscal year indicated in section 2104(a) of the 
Act.
    (2) Additional Amount for Allotment to the Commonwealths and 
Territories for FY 1999. For FY 1999, $32 million in addition to the 
amount specified in paragraph (1) of this section, is available for 
allotment to the Commonwealths and Territories. This additional 
appropriation was provided for the Commonwealths and Territories under 
Pub. L. 105-277.
    (d) Methodology for determining the State allotments for a fiscal 
year.--(1) General methodology and data used for FY 2000 and subsequent 
fiscal years. The methodology for determining the State allotment 
amount for a fiscal year is in accordance with the following formula:

Formula for Calculating the State Allotment for a Fiscal Year
[GRAPHIC] [TIFF OMITTED] TP04MR99.001

SAi = Allotment for a State for a fiscal year.
Ci = Number of children in a State (section 
2104(b)(1)(A)(I)) for a fiscal year.

This number is based on the number of low-income children for a State 
for a fiscal year and the number of low-income children for a State for 
a fiscal year with no health insurance coverage for the fiscal year 
determined on the basis of the arithmetic average of the number of such 
children as reported and defined in the 3 most recent March supplements 
to the Current Population Survey of the Bureau of the Census officially 
available prior to October 1 before the beginning of the fiscal year. 
(section 2104(b)(2)(B)).
    For each of the fiscal years 1998 through 2000, the number of 
children is equal to the number of low-income children in the State for 
the fiscal year with no health insurance coverage. For fiscal year 
2001, the number of children is equal to the sum of 75 percent of the 
number of low-income children in the State for the fiscal year with no 
health insurance coverage and 25 percent of the number of low-income 
children in the State for the fiscal year. For fiscal years 2002 and 
thereafter, the number of children is equal to the sum of 50 percent of 
the number of low-income children in the State for the fiscal year with 
no health insurance coverage and 50 percent of the number of low-income 
children in the State for the fiscal year.

SCFi = State cost factor for a State (section 
2104(b)(1)(A)(ii)of the Act).

    For a fiscal year, this is equal to:

.15 + .85  x  (Wi/WN) (Section 2104(b)(3)(A)).
Wi = The annual average wages per employee for a State for 
such year (section 2104(b)(3)(A)(ii)(I)).
WN = The annual average wages per employee for the 50 States 
and the District of Columbia (section 2104(b)(3)(A)(ii)(II)).


[[Page 10433]]


The annual average wages per employee for a State or for all States and 
the District of Columbia for a fiscal year is equal to the average of 
such wages for employees in the health services industry (SIC 80), as 
reported by the Bureau of Labor Statistics of the Department of Labor 
for each of the most recent 3 years officially available prior to the 
beginning of the fiscal year on October 1. (section 2104(b)(3)(B)).

(Ci  x  SCFi) = The sum of the products 
of (Ci  x  SCFi) for each State (section 
2104(b)(1)(B)).
ATA = Total amount available for allotment to the 50 States 
and the District of Columbia for the fiscal year as determined under 
paragraph (b) of this section.

    (2) Data used for calculating the FY 1998 CHIP allotments. The FY 
1998 CHIP allotments, were calculated in accordance with the 
methodology described in paragraph (d)(1) of this section, using the 
most recent official data that were available from the Bureau of the 
Census and Bureau of Labor Statistics, respectively, prior to the 
September 1 before the beginning of FY 1998 (that is, through August 
31, 1997). In particular, through August 31, 1997, the only official 
data available on the numbers of children were data from the 3 March 
CPSs conducted in March 1994, 1995, and 1996 that reflected data for 
the 3 calendar years 1993, 1994, and 1995.
    (3) Data used for calculating the FY 1999 CHIP allotments. In 
accordance with Public Law 105-277, the FY 1999 allotments were 
calculated in accordance with the methodology described in paragraph 
(d)(1) of this section, using the same data as were used in calculating 
the FY 1998 CHIP allotments.
    (e) Minimum State allotment for a fiscal year. Each State and the 
District of Columbia with an approved State child health plan will 
receive a minimum allotment for a fiscal year in the amount of $2 
million. In the event that a State allotment for a fiscal year 
determined under the formula in Sec. 457.608(d) is below the $2 million 
minimum and needs to be increased, the increase will be offset by 
reducing the State allotments for the other States and the District of 
Columbia in a pro rata manner (but not below $2 million) so that the 
total of such State allotments in a fiscal year does not exceed the 
national total allotment amount available for allotment to the 50 
States and the District of Columbia, determined under Sec. 457.608(b).
    (f) Methodology for determining the Commonwealth and Territory 
allotments for a fiscal year. The total amount available for the 
Commonwealths and Territories for each fiscal year, as determined under 
paragraph (c) of this section, is allotted to each Territory and 
Commonwealth below which has an approved State child health plan. These 
allotments are in the proportion that the following percentages for 
each Commonwealth Territory bear to the sum of such percentages, as 
specified in section 2104(b)(2) of the Act:

Puerto Rico--91.6 percent
Guam--3.5 percent
Virgin Islands--2.6 percent
American Samoa--1.2 percent
Northern Mariana Islands--1.1 percent

    (g) Reserved State allotments for a fiscal year. (1) In order to 
provide an estimate of each States' fiscal year allotments, HCFA uses 
the formula and methodology described in paragraphs (a) through (f) of 
this section, and applies it as if all 50 States, the District of 
Columbia, and the Commonwealths and Territories have an approved State 
child health plan for the fiscal year.
    (2) For FY 2000 and subsequent fiscal years, HCFA determines and 
publishes the State reserved allotments for a fiscal year for each 
State, the District of Columbia, and Commonwealths and Territories in 
the Federal Register based on the most recent official data available 
prior to the beginning of the fiscal year on October 1 for the number 
of children and the State cost factor. For FY 1998 and FY 1999, HCFA 
determines and published the State reserved allotments using the 
available data described in paragraphs (d)(2) and (d)(3) of this 
section, respectively.
    (h) Final allotments. (1) Final State allotments for fiscal year 
1998 for each State, the District of Columbia, and the Commonwealths 
and Territories are determined by HCFA based only on those States, the 
District of Columbia, and the Commonwealths and Territories that have 
approved State child health plans by the end of fiscal year 1999, in 
accordance with the formula and methodology specified in paragraphs (a) 
through (g) of this section.
    (2) Final State allotments for a fiscal year for each State, the 
District of Columbia, and the Commonwealths and Territories are 
determined by HCFA for each State fiscal year after fiscal year 1998 
based only on those States, the District of Columbia, and the 
Commonwealths and Territories that have approved State child health 
plans by the end of the fiscal year, in accordance with the formula and 
methodology specified in paragraphs (a) through (g) of this section.
    (3) HCFA determines and publishes the States' final fiscal year 
allotments in the Federal Register based on the same data, with respect 
to the number of children and State cost factor, as were used in 
determining the reserved allotments for the fiscal year.
    (3) If all States, the District of Columbia, and the Commonwealths 
and Territories have approved State child health plans in place prior 
to the beginning of the fiscal year, as appropriate, HCFA may publish 
the reserved and final fiscal year allotments in the Federal Register 
concurrently.


Sec. 457.610  Period of availability for State allotments for a fiscal 
year.

    The amount of a final allotment for a fiscal year, as determined 
under Sec. 457.608(h) and reduced to reflect certain Medicaid 
expenditures in accordance with Sec. 457.616, remains available until 
expended for Federal payments based on expenditures claimed during a 3-
year period of availability, beginning with the fiscal year of the 
final allotment and ending with the end of the second fiscal year 
following the fiscal year.


Sec. 457.614  General payment process.

    (a) A State may make claims for Federal payment based on 
expenditures incurred by the State prior to or during the period of 
availability related to that fiscal year.
    (b) In order to receive Federal financial participation (FFP) for a 
State's claims for payment for the State's expenditures, a State must--
    (1) Submit budget estimates of quarterly funding requirements for 
Medicaid and the Children's Health Insurance Programs; and
    (2) Submit an expenditure report.
    (c) Based on the State's quarterly budget estimates, HCFA--
    (1) Issues an advance grant to a State as described in 
Sec. 457.630;
    (2) Tracks and applies Federal payments claimed quarterly by each 
State, the District of Columbia, and each Commonwealth and Territory to 
ensure that payments do not exceed the applicable allotments for the 
fiscal year; and
    (3) Track and apply relevant State, District of Columbia, 
Commonwealth and Territory expenditures reported each quarter against 
the 10 percent limit on expenditures other than child health assistance 
for standard benefit package, on a fiscal year basis as specified in 
Sec. 457.618.


Sec. 457.616  Application and tracking of payments against the fiscal 
year allotments.

    (a) In accordance with the principles described in paragraph (c) of 
this

[[Page 10434]]

section, the following categories of payments are applied to reduce the 
State allotments for a fiscal year:
    (1) Payments made to the State for expenditures claimed during the 
fiscal year under its title XIX Medicaid program, to the extent the 
payments were made on the basis of the enhanced FMAP described in 
sections 1905(b) and 2105(b) of the Act for expenditures attributable 
to children described in section 1905(u)(2) of the Act.
    (2) Payments made to the State for expenditures claimed during the 
fiscal year under its title XIX Medicaid program, to the extent the 
payments were made on the basis of the enhanced FMAP described in 
sections 1905(b) and 2105(b) of the Act for expenditures attributable 
to children described in section 1905(u)(3) of the Act.
    (3) Payments made to a State under section 1903(a) of the Act for 
expenditures claimed by the State during a fiscal year that are 
attributable to the provision of medical assistance to a child during a 
presumptive eligibility period under section 1920A of the Act.
    (4) Payments made to a State under its title XXI Children's Health 
Insurance Program with respect to section 2105(a) of the Act for 
expenditures claimed by the State during a fiscal year.
    (b) HCFA applies the principles in paragraph (c) of this section 
to--
    (1) Coordinate the application of the payments made to a State for 
the State's expenditures claimed under the Medicaid and State child 
health insurance program against the State allotment for a fiscal year;
    (2) Determine the order of these payments in that application; and
    (3) Determine the application of payments against multiple State 
child health insurance program fiscal year allotments.
    (c) Principles for applying Federal payments against the allotment. 
HCFA--
    (1) Applies the payments attributable to Medicaid expenditures 
specified in paragraphs (a)(1) through (a)(3) of this section, against 
the State child health plan allotment for a fiscal year before State 
child health plan expenditures specified in paragraph (a)(4) of this 
section are applied.
    (2) Applies the payments attributable to Medicaid and State child 
health plan expenditures specified in paragraph (a) of this section 
against the applicable allotments for a fiscal year based on the 
quarter in which the expenditures are claimed by the State.
    (3) Applies payments against the State allotments for a fiscal year 
in a manner that is consistent for all States.
    (4) Applies payments attributable to Medicaid expenditures 
specified in paragraphs (a)(1) through (a)(3) of this section, in an 
order that maximizes Federal reimbursement for States. Expenditures for 
which the enhanced FMAP is available are applied before expenditures 
for which the regular FMAP is available.
    (5) Applies payments for expenditures against State Child Health 
Insurance Program fiscal year allotments in the least administratively 
burdensome, and most effective and efficient manner; payments are 
applied on a quarterly basis as they are claimed by the State, and are 
applied to reduce the earliest fiscal year State allotments before the 
payments are applied to reduce later fiscal year allotments.
    (6) Applies payments for expenditures for a fiscal year's allotment 
against a subsequent fiscal year's allotment; however, the subsequent 
fiscal year's allotment must be available at the time of application. 
For example, if the allotment for fiscal year 1998 has been fully 
expended, payments for expenditures claimed in fiscal year 1998 are 
carried over for application against the fiscal year 1999 allotment 
when it becomes available.
    (7) Carries over unexpended amounts of a State's allotment for a 
fiscal year for use in subsequent fiscal years through the end of the 
3-year period of availability. For example, if the amounts of the 
fiscal year 1998 allotment are not fully expended by the end of fiscal 
year 1998, these amounts are carried over to fiscal year 1999 and are 
available to provide FFP for expenditures claimed by the State for that 
fiscal year.
    (d) The amount of the Federal payment for expenditures claimed by a 
State, District of Columbia, or the Commonwealths and Territories is 
determined by the enhanced FMAP applicable to the fiscal year in which 
the State paid the expenditure. For example, Federal payment for an 
expenditure paid by a State in fiscal year 1998 that was carried over 
to fiscal year 1999 (in accordance with paragraph (c)(6) of this 
section), because the State exceeded its fiscal year 1998 allotment, is 
available at the fiscal year 1998 enhanced FMAP rate.


Sec. 457.618  Ten percent limit on certain children's health insurance 
program expenditures.

    (a)(1) Primary expenditures are expenditures under a State plan for 
child health assistance to targeted low-income children in the form of 
a standard benefit package, and Medicaid expenditures claimed during 
the fiscal year to the extent Federal payments made for these 
expenditures on the basis of the enhanced FMAP described in sections 
1905(b) and 2105(b) of the Act that are used to calculate the 10 
percent limit.
    (2) Non-primary expenditures are other expenditures under a State 
plan. Subject to the 10 percent limit described in paragraph (c) of 
this section, a State may receive Federal funds at the enhanced FMAP 
for 4 categories of non-primary expenditures:
    (i) Administrative expenditures;
    (ii) Outreach;
    (iii) Health initiatives; and
    (iv) Certain other child health assistance.
    (b) Federal payment will not be available based on a State's non-
primary expenditures for a fiscal year which exceed the 10 percent 
limit of the total of expenditures under the plan, as specified in 
paragraph (c) of this section.
    (c) 10 percent limit. The 10 percent limit is--
    (1) Applied on an annual fiscal year basis;
    (2) Calculated based on the total computable amounts of 
expenditures; and
    (3) Calculated using the following formula:

L10% = (a1+ u2+ u3)/9;

L10% = 10 Percent Limit for a fiscal year
a1 = Total computable amount of expenditures for the fiscal year under 
section 2105(a)(1) of the Act for which Federal payments are available 
at the enhanced FMAP described in section 2105(b) of the Act;
u2 = Total computable expenditures for medical assistance for which 
Federal payments are made during the fiscal year based on the enhanced 
FMAP described in sections 1905(b) and 2105(b) of the Act for 
individuals described in section 1905(u)(2) of the Act; and
u3 = Total computable expenditures for medical assistance for which 
Federal payments are made during the fiscal year based on the enhanced 
FMAP described in sections 1905(b) and 2105(b) of the Act for 
individuals described in section 1905(u)(3) of the Act.

    (4) The expenditures under section 2105(a)(2) of the Act that are 
subject to the 10 percent limit are applied on an annual fiscal year 
basis.
    (5)(i) The 10 percent limit for a fiscal year, as calculated under 
paragraph (c)(3) of this section, may be no greater than 10 percent of 
the total computable amount (determined under paragraph

[[Page 10435]]

(c)(5)(ii) of this section) of the State allotment or allotments 
available in that fiscal year. Therefore, the 10 percent limit is the 
lower of the amount calculated under paragraph (c)(3) of this section, 
and 10 percent of the total computable amount of the State allotment 
available in that fiscal year.
    (ii) As used in paragraph (c)(5)(i) of this section, the total 
computable amount of a State's allotment for a fiscal year is 
determined by dividing the State's allotment for the fiscal year by the 
State's enhanced FMAP for the year. For example, if a State allotment 
for a fiscal year is $65 million and the enhanced FMAP rate for the 
fiscal year is 65 percent, the total computable amount of the allotment 
for the fiscal year is $100 million ($65 million/.65). In this example, 
the 10 percent limit may be no greater than a total computable amount 
of $10 million (10 percent of $100 million).


Sec. 457.622  Rate of FFP for State expenditures.

    (a) Basis. Sections 1905(b), 2105(a) and 2105(b) of the Act 
provides for payments to States from the States' allotments for a 
fiscal year, as determined under Sec. 457.608, for part of the cost of 
expenditures for services and administration made under an approved 
State child health assistance plan. The rate of payment is generally 
the enhanced Federal medical assistance percentage described below.
    (b) Enhanced Federal medical assistance percentage (Enhanced 
FMAP)--Computations. The enhanced FMAP is the lower of the following:
    (1) 70 percent of the regular FMAP determined under section 1905(b) 
of the Act, plus 30 percentage points; or
    (2) 85 percent.
    (c) Conditions for availability of enhanced FMAP based on a State's 
expenditures. The enhanced FMAP is available for payments based on a 
State's expenditures claimed under the State's title XXI program from 
the State's fiscal year allotment only under the following conditions:
    (1) The State has an approved title XXI State child health plan;
    (2) The expenditures are allowable under the State's approved title 
XXI State child health plan;
    (3) State allotment amounts are available in the fiscal year, that 
is, the State's allotment or allotments (as reduced in accordance with 
Sec. 457.616) and available for a fiscal year have not been fully 
expended.
    (4) Expenditures claimed against the 10 percent limit are within 
the State's 10 percent limit for the fiscal year.
    (5) The State is in compliance with the maintenance of effort 
requirements of section 2105(d)(1) of the Act.
    (d) Categories of expenditures for which enhanced FMAP are 
available. Except as otherwise provided below, the enhanced FMAP is 
available with respect to the following States' expenditures:
    (1) Child health assistance under the plan for targeted low-income 
children in the form of providing health benefits coverage that meets 
the requirements of section 2103 of the Act; and
    (2) Subject to the 10 percent limit provisions under 
Sec. 457.618(a)(2), the following expenditures:
    (i) Payment for other child health assistance for targeted low-
income children;
    (ii) Expenditures for health services initiatives under the State 
child health assistance plan for improving the health of children 
(including targeted low-income children);
    (iii) Expenditures for outreach activities; and
    (iv) Other reasonable costs incurred by the State to administer the 
State child health assistance plan.
    (e) CHIP administrative expenditures and CHIP related title XIX 
administrative expenditures--(1) General rule. Allowable title XXI 
administrative expenditures should support the operation of the State 
child health assistance plan. In general, FFP for administration under 
title XXI is not available for costs of activities related to the 
operation of other programs.
    (2) Exception. FFP is available under title XXI, at the enhanced 
FFP rate, for Medicaid administrative expenditures attributable to the 
provision of medical assistance to children described in sections 
1905(u)(2) and 1905(u)(3), and during the presumptive eligibility 
period described in section 1920A of the Act, to the extent that the 
State does not claim those costs under the Medicaid program.
    (3) FFP is not available in expenditures for administrative 
activities for items or services included within the scope of another 
claimed expenditure.
    (4) FFP is available in expenditures for activities defined in 
sections 2102(c)(1) and 2105(a)(2)(C) of the Act as outreach to 
families of children likely to be eligible for child health assistance 
under the plan or under other public or private health coverage 
programs to inform these families of the availability of, and to assist 
them in enrolling their children in such a program.
    (5) FFP is available in administrative expenditures for activities 
specified in sections 2102(c)(2) of the Act as coordination of the 
administration of the State children's health insurance program with 
other public and private health insurance programs. FFP would not be 
available for the costs of administering the other public and private 
health insurance programs. Coordination activities must be 
distinguished from other administrative activities common among 
different programs.


Sec. 457.624  Limitations on certain payments for certain expenditures.

    (a) Abortions--(1) General rule. Payment is not made for any State 
expenditures to pay for abortions or to assist in the purchase, whole 
or in part, of health benefit coverage that includes coverage of 
abortion.
    (2) Exception. Payment may be made for expenditures for health 
benefits coverage and services that include abortions that are 
necessary to save the life of the mother or if the pregnancy is the 
result of rape or incest.
    (b) Waiver for purchase of family coverage. Payment may be made to 
a State with an approved State child health plan for the purchase of 
family coverage under a group plan or health insurance coverage that 
includes coverage of targeted low-income children only if the State 
establishes to the satisfaction of HCFA that--
    (1) Purchase of this coverage is cost-effective relative to the 
amounts that the State would have paid to obtain comparable coverage 
only of the targeted low-income children involved; and
    (2) This coverage will not be provided if it would otherwise 
substitute for health insurance coverage that would be provided to such 
children but for the purchase of family coverage.


Sec. 457.626  Prevention of duplicate payments.

    (a) General rule. No payment shall be made to a State for 
expenditures for child health assistance under its State child health 
plan to the extent that:
    (1) A non-governmental health insurer would have been obligated to 
pay for those services but for a provision of its insurance contract 
that has the effect of limiting or excluding those obligations based on 
the actual or potential eligibility of the individual for child health 
assistance under the State child health insurance plan.
    (2) Payment has been made or can reasonably be expected to be made 
promptly under any other Federally operated or financed health 
insurance or benefits program, other than a program operated or 
financed by the Indian Health Service.

[[Page 10436]]

    (b) Definitions. As used in paragraph (a) of this section--
    Non-governmental health insurer includes any health insurance 
issuer, group health plan, or health maintenance organization, as those 
terms are defined in 45 CFR 144.103, which is not part of, or wholly 
owned by, a governmental entity.
    Prompt payment can reasonably be expected when payment is required 
by applicable statute, or under an approved State plan.
    Programs operated or financed by the Indian Health Service means 
health programs operated by the Indian Health Service, or Indian tribe 
or tribal organization pursuant to a contract, grant, cooperative 
agreement or compact with the Indian Health Service under the authority 
of the Indian Self-Determination and Education Assistance Act (25 
U.S.C. 450, et seq.), or by an urban Indian organization in accordance 
with a grant or contract with the Indian Health Service under the 
authority of title V of the Indian Health Care Improvement Act (25 
U.S.C. 1601, et seq.).


Sec. 457.628  Other applicable Federal regulations.

    Other regulations applicable to State CHIP programs include the 
following:
    (a) HHS regulations in 42 CFR subpart B--Secs. 433.51-433.74 
sources of non-Federal share and Health Care-Related Taxes and 
Provider-Related Donations; these regulations apply to States' CHIPs in 
the same manner as they apply to States' Medicaid programs.
    (b) HHS Regulations in 45 CFR subtitle A:

Part 16--Procedures of the Departmental Appeals Board.

Part 74--Administration of Grants (except as specifically excepted).

Part 80--Nondiscrimination Under Programs Receiving Federal Assistance 
Through the Department of Health and Human Services: Effectuation of 
Title VI of the Civil Rights Act of 1964.

Part 81--Practice and Procedure for Hearings Under 45 CFR part 80.

Part 84--Nondiscrimination on the Basis of Handicap in Programs and 
activities Receiving or Benefiting From Federal Financial Assistance.

Part 95--General Administration--grant programs (public assistance and 
medical assistance).


Sec. 457.630  Grants procedures.

    (a) General provisions. Once HCFA has approved a State child health 
plan, HCFA makes quarterly grant awards to the State to cover the 
Federal share of expenditures for child health assistance, other child 
health assistance, special health initiatives, outreach and 
administration.
    (1) For fiscal year 1998, a State must submit a budget request in 
an appropriate format for the 4 quarters of the fiscal year. HCFA bases 
the grant awards for the 4 quarters of fiscal year 1998 based on the 
State's budget requests for those quarters.
    (2) For fiscal years after 1998, a State must submit a budget 
request in an appropriate format for the first 3 quarters of the fiscal 
year. HCFA bases the grant awards for the first 3 quarters of the 
fiscal year on the State's budget requests for those quarters.
    (3) For fiscal years after 1998, a State must also submit a budget 
request for the fourth quarter of the fiscal year. The amount of this 
quarter's grant award is based on the difference between a State's 
final allotment for the fiscal year, and the total of the grants for 
the first 3 quarters that were already issued in order to ensure that 
the total of all grant awards for the fiscal year are equal to the 
State's final allotment for that fiscal year.
    (4) The amount of the quarterly grant is determined on the basis of 
information submitted by the State (in quarterly estimate and quarterly 
expenditure reports) and other pertinent information. This information 
must be submitted by the State through the Medicaid Budget and 
Expenditure System (MBES) for the Medicaid program, and through the 
Child Health Budget and Expenditure System (CBES) for the title XXI 
program.
    (b) Quarterly estimates. The State children's health insurance 
program agency must submit Form HCFA-21B (Children's Health Insurance 
Program Budget Report for Children's Health Insurance Program State 
expenditures) to the HCFA central office (with a copy to the HCFA 
regional office) 45 days before the beginning of each quarter.
    (c) Expenditure reports. (1) The State must submit Form HCFA-64 
(Quarterly Medicaid Statement of Expenditures for the Medical 
Assistance Program) and Form HCFA-21 (Quarterly Children's Health 
Insurance Program Statement of Expenditures for title XXI), to central 
office (with a copy to the regional office) not later than 30 days 
after the end of the quarter.
    (2) This report is the State's accounting of actual recorded 
expenditures. This disposition of Federal funds may not be reported on 
the basis of estimates.
    (d) Additional required information. A State must provide HCFA with 
the following information regarding the administration of the title XXI 
program:
    (1) Name and address of the State Agency/organization administering 
the program;
    (2) The employer identification number (EIN); and
    (3) A State official contact name and telephone number.
    (e) Grant award.--(1) Computation by HCFA. Regional office staff 
analyzes the State's estimates and sends a recommendation to the 
central office. Central office staff considers the State's estimates, 
the regional office recommendations and any other relevant information, 
including any adjustments to be made under paragraph (e)(2) of this 
section, and computes the grant.
    (2) Content of award. The grant award computation form shows the 
estimate of expenditures for the ensuring quarter, and the amounts by 
which that estimate is increased or decreased because of an increase or 
overestimate for prior quarters, or for any of the following reasons:
    (i) Penalty reductions imposed by law.
    (ii) Deferrals or disallowances.
    (iii) Interest assessments.
    (iv) Mandated adjustments such as those required by section 1914 of 
the Act.
    (3) Effect of award. The grant award authorizes the State to draw 
Federal funds as needed to pay the Federal share of disbursements.
    (4) Draw procedure. The draw is through a commercial bank and the 
Federal Reserve system against a continuing letter of credit certified 
to the Secretary of the Treasury in favor of the State payee. (The 
letter of credit payment system was established in accordance with 
Treasury Department regulations -Circular No.1075.)
    (f) General administrative requirements. With the following 
exceptions, the provisions of 45 CFR part 74, that establish uniform 
administrative requirements and cost principles, apply to all grants 
made to States under this subpart:

(1) Subpart G--Matching and Cost Sharing; and
(2) Subpart I--Financial Report Requirement.

    E. 45 CFR PART 92 is amended as follows:

PART 92--UNIFORM ADMINISTRATION REQUIREMENTS FOR GRANTS AND 
COOPERATIVE AGREEMENTS TO STATE AND LOCAL GOVERNMENTS

    1. The authority citation for part 92 continues to read as follows:

    Authority: 42 U.S.C. 301.


[[Page 10437]]


    2. Section 92.4 is amended by revising paragraphs(a)(3)(iv) and 
(a)(3)(v), and adding a new paragraph (a)(3)(vi) to read as follows:


Sec. 92.4  Applicability.

    (a) * * *
    (3) * * *
    (iv) Aid to the Aged, Blind, and Disabled (titles I, X, XIV, and 
XVI-AABD of the Act);
    (v) Medical Assistance (Medicaid) (title XIX of the Act) not 
including the State Medicaid Fraud Control program authorized by 
section 1903(a)(6)(B); and
    (vi) State Children's Health Insurance Program (title XXI of the 
Act).
* * * * *
    C. 45 CFR part 95 is amended as follows:
    1. The heading of part 95 is revised to read as follows:

PART 95--GENERAL ADMINISTRATION --GRANT PROGRAMS (PUBLIC 
ASSISTANCE, MEDICAL ASSISTANCE AND CHILDREN'S HEALTH INSURANCE 
PROGRAMS)

    2. The authority citation for part 95 is revised to read as 
follows:

    Authority: Sec. 452(a), 83 Stat. 2351, 42 U.S.C. 652(a): sec. 
1102, 49 Stat. 647, 42 U.S.C. 1302; sec. 7(b), 68 Stat. 658, 29 
U.S.C. 37(b); sec. 139, 84 Stat. 1323, 42 U.S.C. 2577b; sec. 144, 81 
Stat. 529, 42 U.S.C. 2678; sec. 1132, 94 Stat. 530, 42 U.S.C. 1320b-
2; sec. 306(b), 94 Stat. 530, 42 U.S.C. 1320b-2note, unless 
otherwise noted.

Subpart A--Time Limits for States to file Claims

    3. In Sec. 95.1(a), title XXI is added in numerical order 
immediately following title XX as follows:


Sec. 95.1  Scope.

* * * * *
    (a) * * *

Title XXI--Grants to States for Children's Health Insurance Programs

* * * * *
    4. In Sec. 95.4, the definition of ``State agency'' is revised to 
read as follows:


Sec. 95.4  Definitions.

* * * * *
    State agency for the purposes of expenditures for financial 
assistance under title IV-A and for support enforcement services under 
title IV-D means any agency or organization of the State or local 
government which is authorized to incur matchable expenses; for 
purposes of expenditures under titles XIX and XXI, means any agency of 
the State, including the State Medicaid agency or State Child Health 
Agency, its fiscal agents, a State health agency, or any other State or 
local organization which incurs matchable expenses; for purposes of 
expenditures under all other titles, see the definitions in the 
appropriate program's regulations.
* * * * *
    5. In Sec. 95.13, paragraph (b) and the first sentence of paragraph 
(d) are revised to read as follows:


Sec. 95.13  In which quarter we consider an expenditure made.

* * * * *
    (b) We consider a State agency's expenditure for services under 
title I, IV-A, IV-B, IV-D, IV-E, X, XIV, XVI (AABD , XIX, or XXI to 
have been made in the quarter in which any State agency made a payment 
to the service provider.
* * * * *
    (d) We consider a State agency's expenditure for administration or 
training under titles I, IV-A, IV-B, IV-D, IV-E, X, XIV, XVI (AABD), 
XIX, or XXI to have been made in the quarter payment was made by a 
State agency to a private agency or individual; or in the quarter to 
which the costs were allocated in accordance with the regulations for 
each program. * * *
    5. Section 95.503 is revised to read as follows:

Subpart E--Cost Allocation Plans


Sec. 95.503  Scope.

    This subpart applies to all State agency costs applicable to awards 
made under titles I, IV-A, IV-B, IV-C, IV-D, IV-E, X, XIV, XVI (AABD), 
XIX, and XXI, of the Social Security Act, and under the Refugee Act of 
1980, title IV, Chapter 2 of the Immigration and Nationality Act (8 
U.S.C. 1521 et seq.), and under title V of Pub. L. 96-422, the Refugee 
Education Assistance Act of 1980.
    6. Section 95.507(a)(3) is revised to read as follows:


Sec. 95.507  Plan requirements.

    (a) * * *
    (3) Be compatible with the State plan for public assistance 
programs described in 45 CFR Chapter II, III and XIII, and 42 CFR 
Chapter IV Subchapters C and D; and
* * * * *
    7. Section 95.601 is revised to read as follows:

Subpart F--Automatic Data Processing Equipment and Services--
Conditions for Federal Financial Participation (FFP)

General


Sec. 95.601  Scope and Applicability.

    This subpart prescribes part of the conditions under which the 
Department of Health and Human Services will approve Federal financial 
participation (FFP) at the applicable rates for the costs of automatic 
data processing incurred under an approved State plan for titles I, IV-
A, IV-B, IV-D, IV-E, X, XIV, XVI(AABD), XIX, or XXI of the Social 
Security Act and title IV chapter 2 of the Immigration and Nationality 
Act. The conditions of approval of this subpart add to the statutory 
and regulatory requirements for acquisition of ADP equipment and 
services under the specified titles of the Social Security Act.
    8. In Sec. 95.605, the definitions of ``approving component'', 
``operation'', ``regular matching rate'', and ``State agency'' are 
revised to read as follows:


Sec. 95.605  Definitions.

* * * * *
    Approving component means an organization within the Department 
that is authorized to approve requests for the acquisition of ADP 
equipment or ADP services. Family Support Administration (FSA) for cash 
assistance for titles I, IV-A, X, XIV, and XVI(AABD); Office of Human 
Development Services (OHDS) for social services for Titles IV-B (child 
welfare services) and IV-E (foster care and adoption assistance); 
Family Support Administration (FSA) for title IV-D; and Health Care 
Financing Administration (HCFA) for titles XIX and XXI of the Social 
Security Act.
* * * * *
    Operation means the automated processing of data used in the 
administration of State plans for titles I, IV-A, IV-B, IV-D, IV-E, X, 
XIV, XVI(AABD), XIX, and XXI of the Social Security Act. Operation 
includes the use of supplies, software, hardware, and personnel 
directly associated with the functioning of the mechanized system. See 
45 CFR 205.38 and 307.10 for specific requirements for titles IV-A and 
IV-D, and 42 CFR 433.112 and 42 CFR 433.113 for specific requirements 
for title XIX.
    Regular matching rate means the normal rate of FFP authorized by 
titles IV-A, IV-B, IV-D, IV-E, X, XIV, XVI(AABD), XIX, and XXI of the 
Social Security Act for State and local agency

[[Page 10438]]

administration of programs authorized by those titles.
* * * * *
    State agency means the State agency administering or supervising 
the administration of the State plan under titles I, IV, X, XIV, 
XVI(AABD), XIX or XXI of the Social Security Act.
* * * * *
    9. In Sec. 95.703 the definition of ``Public Assistance Programs'' 
is revised to read as follows:


Sec. 95.703  Definitions.

* * * * *
    Public Assistance Programs means programs authorized by titles I, 
IV-A, IV-B, IV-C, IV-D, IV-E, X, XIV, XVI (AABD), XIX and XXI of the 
Social Security Act, and programs authorized by the Immigration and 
Nationality Act as amended by the Refugee Act of 1980 (Pub. L. 96-212).
* * * * *
(Section 1102 of the Social Security Act (42 U.S.C. 1302)

(Catalog of Federal Domestic Assistance Program No. 00.000, State 
Children's Health Insurance Program)

    Dated: August 3, 1998.
Nancy-Ann Min DeParle,
Administrator, Health Care Financing Administration.

    Dated: February 23, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-4933 Filed 3-3-99; 8:45 am]
BILLING CODE 4120-01-P