[Federal Register Volume 66, Number 174 (Friday, September 7, 2001)]
[Proposed Rules]
[Pages 46763-46768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22605]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 431

[CMS-2128-P]
RIN 0938-AL06


Medicaid Program; Continue To Allow States an Option Under the 
Medicaid Spousal Impoverishment Provisions To Increase the Community 
Spouse's Income When Adjusting the Protected Resource Allowance

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: Section 1924 of the Social Security Act (the ``Act'') sets 
forth provisions designed to afford financial protection against 
impoverishment to a non-institutionalized spouse of an 
institutionalized individual. These provisions contain several formulas 
to provide this protection and specify how income and resources of 
spouses separated by institutionalization will be treated for purposes 
of determining the institutionalized spouse's Medicaid eligibility and 
calculating the amount the institutionalized spouse must contribute 
towards the cost of his or her institutional care. This proposed rule 
would implement certain provisions of section 1924 of the Act, which 
provides for fair hearings for an increase in the community spouse 
resource allowance.

DATES: We will consider comments if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on November 6, 2001.

ADDRESSES: In commenting, please refer to file code CMS-2128-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission. Mail written comments (one original and 
three copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-2128-P, P.O. Box 8016, Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) 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 20201, or Room C5-16-03, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Roy Trudel, (410) 786-3417.

SUPPLEMENTARY INFORMATION:   
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, phone (410) 786-0626 or (410) 786-7195.

I. Background

A. Statutory Basis

    Title XIX of the Social Security Act (the Act), ``provid[es] 
federal financial assistance to States that choose to reimburse certain 
costs of medical treatment for needy persons.'' Harris v. McRae, 448 
U.S. 297, 301 (1980). Under section 1902(a)(17) of the Act, each 
participating State must develop a plan containing ``reasonable 
standards * * * for determining eligibility for and the extent of 
medical assistance.'' Schweiker v. Gray Panthers, 453 U.S. 34, 36 
(1981). Section 1902(a)(17)(B) of the Act states that those State 
standards must ``provide for taking into account only such income and 
resources as are, as determined in accordance with standards prescribed 
by the Secretary, available to the applicant or recipient.''
    Section 1924 of the Act requires a State with a Medicaid program to 
use special rules for the treatment of income and resources of married 
institutionalized individuals who have

[[Page 46764]]

spouses who are not institutionalized. (Throughout this preamble, we 
use the term ``institutionalized spouses'' to mean married 
institutionalized individuals and the term ``community spouses'' to 
mean spouses who are not institutionalized.) These provisions are 
referred to as the ``spousal impoverishment'' provisions. The spousal 
impoverishment provisions govern the allocation of income and resources 
between the spouses for determining Medicaid eligibility of the 
institutionalized spouse as well as allowing the States to determine 
how much income of the institutionalized spouse is available to be 
applied toward the cost of his or her institutional care (``post-
eligibility determinations'').

B. Income and Resource Allocation

    Income and resource calculations for married persons have proved to 
be a matter of great complexity, particularly when one of the spouses 
is cared for in an institutional setting, such as a nursing home, but 
the other spouse is not institutionalized. Before 1989, the provisions 
governing the Medicaid eligibility of institutionalized spouses 
sometimes left the community spouse with income below the poverty level 
and with minimal resources as well. At that time, after the month of 
institutionalization, the income of the two spouses was considered 
separately in most States for purposes of determining an 
institutionalized spouse's eligibility. However, very little of the 
institutionalized spouse's income could be protected for use by the 
spouse in the community. This often left the community spouse with 
little income to live on. After the month of institutionalization, most 
States would consider the joint resources of the community spouse and 
the institutionalized spouse (subject to a limited exclusion), and any 
property owned solely by the institutionalized spouse to be available 
for the care of the institutionalized spouse. (Property owned solely by 
the community spouse was not considered.) Thus, depending on how 
resources were owned, many married couples would have to deplete almost 
all of their resources before the institutionalized spouse would 
qualify for Medicaid. The net effect of those requirements in some 
cases was the ``pauperization'' of the community spouse. H.R. Rep. No. 
105, 100th Cong., 1st Sess. Pt. 2, at 65 (1987).
    The Congress attempted to alleviate that spousal impoverishment 
hardship in the Medicare Catastrophic Coverage Act (MCCA) of 1988, 
(Public Law 100-360, enacted on December 22, 1988.) The MCCA requires a 
State to use a complex set of requirements and exclusions when 
allocating income and resources between community and institutionalized 
spouses, both when the State makes the initial eligibility 
determination, and later in post-eligibility determinations.
    In section 1924(a)(1) of the Act, it provides that the spousal 
impoverishment provisions ``supersede any other provision'' of the 
Medicaid statute that ``is inconsistent with them.'' However, the MCCA 
did not repeal the Secretary's authority to prescribe standards (under 
section 1902(a)(17)(B) of the Act) for determining what income is 
``available'' to a spouse, and the requirement for States to set 
reasonable standards for determining eligibility and amount of 
assistance. That section 1902(a)(17) authority may now only be 
exercised in a manner that does not contravene the specific 
requirements of the spousal impoverishment provisions.
    With respect to the allocation of income as part of an eligibility 
determination, the spousal impoverishment provisions impose only a 
single rule. Section 1924(b)(1) of the Act provides that during any 
month in which an institutionalized spouse is in the institution, no 
income of the community spouse shall be deemed available to the 
institutionalized spouse (subject to certain qualifications regarding 
income attribution). Thus, section 1924(b)(1) of the Act establishes a 
special rule that protects the income of the community spouse by 
excluding that income from consideration when determining whether the 
institutionalized spouse is eligible for Medicaid. Section 1924(b)(1) 
of the Act, however, does not address the extent to which the State may 
consider the institutionalized spouse's income available to meet the 
needs of the community spouse.
    With respect to income attribution after the State makes the 
initial eligibility determination, the spousal impoverishment 
provisions provide more extensive guidance and requirements. 
Specifically, section 1924(b)(2) of the Act provides that, if payment 
of income is made solely in the name of one spouse, that income is 
generally treated as available only to that spouse. Section 1924(d) of 
the Act provides a number of exceptions to that rule, which are 
generally designed to ensure that the community spouse has sufficient 
income to meet his or her basic monthly needs. In particular, section 
1924(d) of the Act provides for the establishment of a minimum monthly 
maintenance needs allowance for each community spouse. The community 
spouse's minimum monthly maintenance needs allowance is set at a level 
that is much higher than the official Federal poverty level. Once 
income is attributed to each of the spouses according to the general 
rules in section 1924(b) of the Act, the income attributed to the 
community spouse is compared to the community spouse's minimum monthly 
maintenance needs allowance. Section 1924(d)(2) of the Act provides 
that if the community spouse's income is less than the minimum monthly 
maintenance needs allowance, the amount of the shortfall can be 
deducted from the income of the institutionalized spouse that would 
otherwise be considered available for the care of the institutionalized 
spouse. The amount of that deduction is referred to as the community 
spouse monthly income allowance.
    The deduction of the community spouse monthly income allowance, in 
effect, prevents income the community spouse needs to meet basic living 
expenses from being considered available for the care of the 
institutionalized spouse. The deduction thus causes Medicaid to assume 
a greater portion of the costs of institutionalized care. The greater 
Medicaid payments for care of the institutionalized spouse would free 
up income to meet the minimum needs of the community spouse. The 
community spouse monthly income allowance, therefore, ensures that the 
community spouse's basic monthly maintenance needs can be met before 
the institutionalized spouse's income is considered available to pay 
for the costs of his or her own institutional care.
    With respect to the attribution of resources between the 
institutionalized spouse and community spouse, the statute provides 
extensive rules for both initial and post-eligibility decisions. For 
initial eligibility determinations, each spouse's share of resources is 
calculated as of the beginning of the institutionalized spouse's first 
period of institutionalization. At that time, all of the 
institutionalized spouse's and community spouse's resources are tallied 
together, and one half of the total value is allocated to each spouse 
(the ``spousal share''). Often, most of the resources allocated to the 
institutionalized spouse must be exhausted before the institutionalized 
spouse is eligible for Medicaid. In contrast, the community spouse's 
share is protected from complete exhaustion. In particular, the 
community spouse's resources are not considered available for the care 
of the institutionalized spouse (and the institutionalized spouse can 
become Medicaid eligible) so long as the community spouse's share does

[[Page 46765]]

not exceed the community spouse resource allowance (CSRA). Thus, the 
CSRA limits the extent to which the spouses must exhaust resources 
before the institutionalized spouse becomes eligible for Medicaid. 
Section 1924(f)(2)(A) of the Act specifies that the CSRA is the 
greatest of (1) $12,000 or a State standard up to $60,000 (indexed for 
inflation; for 2001 the indexed amount is $87,000); (2) the lesser of 
the spousal share (approximately one-half of the spouses' pooled 
resources) or $60,000 (indexed for inflation); (3) the amount set at a 
fair hearing under section 1924(e)(2) of the Act; or (4) the amount 
transferred under a court order.
    In allocating income and resources between spouses, States have 
employed two divergent methods. Under the method used by most States, 
known as the ``income-first'' method, the institutionalized spouse's 
income (above the allowances specified in section 1924(d) of the Act) 
is allocated to the community spouse for purposes of determining the 
extent to which the community spouse has sufficient income to meet 
minimum monthly maintenance needs. Under the income-first method, the 
CSRA is increased only if the community spouse's income will not reach 
his or her minimum monthly maintenance needs allowance after taking 
into account any income not protected under section 1924(d) that is 
available or potentially available from the institutionalized spouse. 
In contrast, under the other method, known as the ``resources-first'' 
method, the couple's resources can be protected for the benefit of the 
community spouse to the extent necessary to ensure that the community 
spouse's total income, including income generated by the CSRA, meets 
the community spouse's minimum monthly maintenance needs allowance. 
Additional income from the institutionalized spouse that may be, but 
has not been, made available for the community spouse is not 
considered.

C. Current Policy and Implementation of the New Provisions

    Section 1924(e)(2)(C) of the Act provides that if either spouse 
establishes that the CSRA (in relation to the amount of income 
generated by that allowance) is inadequate to raise the community 
spouse's income to the minimum monthly maintenance needs allowance, 
there shall be substituted an amount adequate to provide a minimum 
monthly maintenance needs allowance.
    We have previously issued policy memoranda and letters expressing 
our view that section 1924(e)(2)(C) of the Act authorizes a State to 
consider potential income transfers from an institutionalized spouse to 
a community spouse, so that a State may adopt the income-first method 
or apply some other reasonable methodology until we issue final 
regulations addressing the issue. Thus, under our present policy, 
States may clearly use the income-first method, and may be able to use 
other methods, such as resources-first. In other words, consistent with 
the statutory requirement that State's utilize ``reasonable standards'' 
for determining eligibility and the amount of benefits as described in 
Section 1902(a)(17), we have permitted States to employ income-first or 
other reasonable methodologies. In practice, no State has elected to 
use a method other than income-first or resources-first. The proposed 
regulation is therefore intended to codify and reflect long-standing 
State practices.
    However, the issue of which criteria may be employed during the 
fair hearing under section 1924(e)(2)(C) of the Act to determine 
whether, and if so by how much, to raise the CSRA has been the subject 
of some dispute. Permitting the community spouse to obtain a larger 
CSRA can give the community spouse additional income-generating 
resources to meet minimum monthly needs. Without an increase in the 
CSRA, the resources would be considered available to the 
institutionalized spouse and might have to be exhausted before the 
institutionalized spouse would be Medicaid eligible. On the other hand, 
permitting the hearing officer to raise the CSRA when the 
institutionalized spouse has income which could be used to enable the 
community spouse to meet minimum monthly maintenance needs can, under 
some circumstances, have unintended consequences for a State's Medicaid 
program. This policy can create an avenue for a couple to shelter 
almost limitless amounts of resources, provided these resources 
currently have minimal incoming-producing value.
    Indeed, the legality of the income first rule has been challenged 
in several courts. The United States Courts of Appeals for the Sixth 
and Third Circuits have upheld the income-first rule in Chambers v. 
Ohio Dep't of Human Servs., 145 F.3d 793, 802 (6th Cir. 1998) and 
Cleary v. Waldman, 167 F.3d 801, 811-812 (3d Cir. 1999), respectively. 
Nevertheless, the Wisconsin Court of Appeals invalidated a Wisconsin 
statute, which adopted the income-first rule, holding that the spousal 
impoverishment provisions of the Medicaid program unambiguously 
preclude the use of an ``income-first'' methodology. The United States 
Supreme Court has granted the State of Wisconsin's petition for review 
of this decision. See Wisconsin Department of Health and Family 
Services v. Blumer, No. 00-952.
    Because this subject has been a source of some controversy, we 
believe it is appropriate to codify provisions regarding the community 
spouse resource allowance before adopting regulations governing all of 
the spousal impoverishment protection provisions of section 1924 of the 
Act.

II. Provisions of the Proposed Regulations

    We propose to allow States the threshold choice of using either the 
income-first or resources-first method when determining whether the 
community spouse has sufficient income to meet minimum monthly 
maintenance needs. Under our proposal, States would not be able to use 
different rules on a case-by-case basis, but must apply the same rule 
to all spouses. Under section 1902(a)(17)(B) of the Act, the Secretary 
has authority to prescribe appropriate standards for determining 
whether income is ``available.'' In the exercise of that authority, and 
in view of the cooperative federalism considerations embodied in the 
Medicaid program, we have concluded that States may be in the best 
position to determine the type of protection to afford community 
spouses and whether to require hearing officers to take into account 
any income of the institutionalized spouse before raising the CSRA.
    We believe that section 1924 of the Act does not specifically 
address whether the income-first or resources-first method is 
appropriate in making the determination on raising the CSRA. Section 
1924(e)(2)(C) of the Act directs the State to determine whether the 
community spouse's income meets his or her minimum monthly maintenance 
needs. It also provides that, if the community spouse's income falls 
short of meeting those needs, the CSRA should be increased by an amount 
that will generate sufficient income to bring the community spouse's 
income to the minimum monthly maintenance needs level. However, this 
statutory guidance does not address whether the community spouse's 
income may include the institutionalized spouse's income that could be 
made available to the community spouse.
    In fact, while section 1924(b)(1) specifically prohibits the 
community spouse's income from being considered available for the care 
of the institutionalized spouse, the statute does not preclude the 
Secretary nor the

[[Page 46766]]

State from considering the institutionalized spouse's income from being 
available to the community spouse for purposes of determining whether 
the community spouse's needs will be met absent an increase in the 
CSRA. That supports an inference that it is permissible to consider all 
or some portion of the institutionalized spouse's income to be 
available to the community spouse. In addition, the legislative history 
suggests that Congress contemplated the possibility that, in 
determining whether to raise the CSRA, States might take into account 
not only the community spouse's own income but ``other income 
attributable to the community spouse'' consistent with the Secretary's 
rules. H.R. Cong. Rep. No. 661, 100th Cong., 2d Sess 265 (1988). 
Accordingly, we believe that the statute permits an income-first rule 
and does not foreclose a resources-first rule.
    Because an income-first rule would conserve scarce resources that 
States may allocate towards their Medicaid programs, avoid sheltering 
of high value low income-producing resources, and generally affords the 
community spouse a significant degree of protection from 
impoverishment, States may prefer to employ this approach. On the other 
hand, the resources-first rule may in certain cases afford greater 
protection to the community spouse, especially after the death of the 
institutionalized spouse. While in our view, the statute certainly does 
not compel States to adopt the resources-first method, we believe it 
would be appropriate to afford the option of selecting a resources-
first rule.
    Section 1924(a) of the Act provides that in determining the 
eligibility for medical assistance of an institutionalized spouse, its 
provisions supersede any other provision of title XIX of the Act, 
``which is inconsistent with them,'' including section 1902(a)(17). 
Section 1902(a)(17)(B) of the Act provides that the State plan for 
medical assistance shall ``provide for taking into account only the 
income and resources, as are, as determined in accordance with 
standards prescribed by the Secretary, available to the applicant or 
recipient * * *.'' (Emphasis supplied.) In Schweiker v. Gray Panthers, 
453 U.S. 34, 44, 101 S.Ct 2633, 2640 (1981), the Supreme Court held 
that the underscored language constituted a delegation of substantive 
rulemaking authority to the Secretary. Therefore, section 
1902(a)(17)(B) of the Act gives the Secretary the authority to 
promulgate regulations on the matter of how much income and resources 
are available to applicants for, or recipients of, Medicaid for 
determining their eligibility and the amount of assistance they may 
receive. Furthermore, because our proposal to permit States to use 
either the income-first or resources-first method does not conflict 
with section 1924 of the Act, we can issue a proposed rule on this 
matter.
    As noted above, section 1924(e)(2)(C) of the Act authorizes either 
spouse to establish whether the community spouse resource allowance is 
inadequate to raise the community spouse's income to the minimum 
monthly maintenance needs allowance. However, it does not specify 
whether in the process of establishing the inadequacy of the community 
spouse resource allowance, all of the institutionalized spouse's income 
which could be made available to the community spouse must be taken 
into account before seeking this adjustment. Because section 1924(e)(2) 
of the Act is silent on this issue, it does not conflict with the 
Secretary's authority under section 1902(a)(17)(B) of the Act to 
prescribe standards for determining the amount of the institutionalized 
spouse's income that would be available to the community spouse in 
determining whether it is appropriate to raise the community spouse 
resource allowance. This determination would have a corresponding 
impact on the institutionalized spouse's Medicaid eligibility.
    Since our decision, under section 1902(a)(17)(B) of the Act, to 
permit States to use either the income-first or resources-first rule 
does not conflict with section 1924 of the Act, we are able to issue 
proposed regulations on this matter. In other words, because the 
statute does not require nor foreclose States from using either the 
income-first or resources-first method, we can use the rulemaking 
authority under section 1902(a)(17) of the Act to leave the choice of 
method to the States. (This approach is consistent with the Supreme 
Court's decision in Batterton v. Francis, 432 U.S. 416 (1977), which 
upheld a regulation that permitted States to define ``unemployed'' 
either to include families participating in a labor strike or to 
exclude them.) In addition, Section 1902(a)(17) contemplates that 
States will establish plans containing ``reasonable standards'' for 
determining eligibility consistent with the Act and our regulations. 
The statute thus contemplates that different States may establish 
different standards for determining eligibility, so long as all are 
``reasonable'' and all are consistent with the Act and our regulations. 
Accordingly, as an exercise of our discretion, we propose to leave to 
the States the option to either use the income-first or resources-first 
method for purposes of a fair hearing under section 1924(e)(2)(C) of 
the Act to determine whether, and if so by how much, to raise the CSRA.
    As such, we propose to add a new Sec. 431.260 to provide for fair 
hearings to raise the community spouse resource allowance. At 
Sec. 431.260(a), we propose to define ``institutionalized spouse'' as 
an individual who is married to a person who is not in a medical 
institution or nursing facility and who is either likely to be in an 
institution or nursing facility or likely to be receiving services 
under a home and community-based waiver under section 
1902(a)(10)(A)(ii)(VI) of the Act for at least 30 consecutive days. We 
propose to define the term ``community spouse'' as the spouse of an 
institutionalized individual. We would define the term ``community 
spouse resource allowance'' as the amount of a couple's combined 
resources (held jointly and separately), allocated to the community 
spouse and considered unavailable to the institutionalized spouse when 
determining his or her eligibility for Medicaid, as specified in 
section 1924(f)(2)(A) of the Act. Additionally, we would define 
``minimum monthly maintenance needs allowance'' as the minimum amount 
of an institutionalized spouse's income that is protected for the 
community spouse.
    At Sec. 431.260(b), we would specify that either spouse may request 
a hearing to establish that the community spouse resource allowance (in 
relation to the amount of income generated by the allowance) is not 
adequate to raise the community spouse's income to the minimum monthly 
maintenance needs allowance. At Sec. 431.260(c), we propose to provide 
that the State must choose to use either the income-first method or the 
resources-first method when determining whether to increase the 
community spouse resource allowance to ensure the community spouse has 
sufficient income to meet minimum monthly maintenance needs. We would 
provide that under the income-first method, the State require that all 
income of the institutionalized spouse that could be made available to 
the community spouse after subtracting the allowances specified in 
section 1924(d) be considered to be available before additional 
resources are allocated to raise the community spouse's income to meet 
the minimum monthly maintenance needs allowance. We propose that under 
the resources-first method, the State allocate additional resources to 
raise the community spouse's income to meet the minimum monthly 
maintenance needs allowance

[[Page 46767]]

without regard to income of the institutionalized spouse that 
potentially could be made available to the community spouse, but has 
not been made available.

III. Collection of Information Requirements

    Under the Paper Work Reduction Act (PRA) of 1995, we are required 
to provide 60-day notice in the Federal Register and solicit public 
comment if Office of Management and Budget review and approval is 
needed because a proposed regulation imposes a collection of 
information requirement. However, this proposed regulation does not 
impose any new collection of information requirements. Consequently, it 
need not be reviewed by the Office of Management and Budget under the 
authority of the Paperwork Reduction Act of 1995. The proposed 
regulation only codifies the existing State practice of choosing 
whether to use income-first or resources-first, a matter we have left 
entirely to each State. We do not currently require States to formally 
notify us about which approach they take, and the proposed regulation 
similarly does not require this notification. Thus, the proposed rule 
imposes no new or different processes or information requirements on 
States.

IV. 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 DATES 
section of this preamble, and, if we proceed with a subsequent 
document, we will respond to the major comments in the preamble to that 
document.

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review) and the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354). 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, if regulation is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more in any one year). This proposed rule would give 
States an option to use either an income-first method or resources-
first method when determining whether the community spouse has 
sufficient income to meet minimum monthly maintenance needs. This 
proposed rule is not a major rule because it would not impose new costs 
on State governments or other entities. The proposed rule only codifies 
existing State practices, and in no way requires States to take any 
action that would increase or even change their current program costs.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $25 
million or less annually. Individuals and States are not included in 
the definition of a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. 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 100 beds. This proposed rule would 
have no impact on small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in an expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. The proposed rule would have no impact 
on the private sector. The rule would impose no requirements on State, 
local or tribal governments. The rule only codifies existing State 
practices, and thus requires no new or additional expenditures of funds 
by any entity, government or private.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that would impose substantial direct requirement costs on 
State and local governments, preempts State law, or otherwise has 
Federalism implications. Because this proposed rule only codifies 
existing State practices, it would impose no requirements on 
governments, nor does it preempt State law or otherwise have Federalism 
implications.

B. Anticipated Effects

    Because the proposed rule only codifies existing State practices, 
it will have no new effect on State governments, providers, or the 
Medicaid and Medicare programs. Therefore, we are not providing an 
impact analyses.

C. Alternative Considered

    We considered imposing a requirement on all States to use the 
income-first methodology, or a requirement that all States use the 
resources-first methodology when determining whether to raise the 
community spouse resource allowance. However, as explained in the 
preamble to this proposed rule, we do not believe the statute clearly 
requires the use of either of those alternatives to the exclusion of 
the other. Therefore, we believe, in the spirit of Federalism, that we 
should leave to States the decision as to which alternative to use.

D. Conclusion

    For these reasons, we are not preparing analyses 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.

List of Sections Affected in 42 CFR Part 431

    Grant programs-health, Health facilities, Medicaid, Privacy, 
Reporting and recordkeeping requirements.
    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services propose to amend 42 CFR part 431 as follows:

PART 431--STATE ORGANIZATION AND GENERAL ADMINISTRATION

    1. The authority citation for part 431 continues to read as 
follows:

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


Sec. 431.200  [Amended]

    2. Section 431.200 is amended by adding the sentence, ``This 
subpart also implements section 1924(e)(2)(C) of the Act, which 
provides for a fair hearing regarding revision of the community

[[Page 46768]]

spouse resource allowance.'' at the end of the section.
    3. A new undesignated, centered heading, and new Sec. 431.260 are 
added to read as follows:

Community Spouse Resource Allowance


Sec. 431.260  Fair hearings to raise the community spouse resource 
allowance.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Community spouse means the spouse of an institutionalized 
individual.
    Community spouse resource allowance means the amount of a couple's 
combined jointly and separately-owned resources, as specified in 
section 1924(f)(2)(A) of the Act, allocated to the community spouse and 
considered unavailable to the institutionalized spouse when determining 
his or her eligibility for Medicaid.
    Institutionalized spouse means an individual who meets all of the 
following criteria:
    (1) The individual is in a medical institution or nursing facility 
(or at the State's option, is eligible for home and community-based 
waiver services under section 1902(a)(10)(A)(ii)(VI) of the Act).
    (2) The individual is likely to remain in a medical institution or 
nursing facility (or satisfy the State option) for at least 30 
consecutive days.
    (3) The individual is married to a person who is not in a medical 
institution or nursing facility.
    Minimum monthly maintenance needs allowance means the minimum 
amount of income, as determined under section 1924(d)(3) of the Act, 
that is protected for the community spouse when determining the amount 
of the institutionalized spouse's income that is to be applied to the 
cost of care.
    (b) Request for a hearing. Either spouse (or authorized 
representative) may request a hearing to establish that the community 
spouse resource allowance (in relation to the amount of income 
generated by the allowance) is not adequate to raise the community 
spouse's income to the minimum monthly maintenance needs allowance.
    (c) Methodology for determining an increase in the community spouse 
resource allowance. For purposes of conducting a hearing to determine 
whether it is appropriate to raise the community spouse resource 
allowance (and if so by how much) a State must elect either of the 
following methods, which must apply to all hearings of this type under 
the State's Medicaid program:
    (1) Income-first method. The State considers that all income of the 
institutionalized spouse that could be made available to the community 
spouse, after deducting the allowances specified in section 1924(d) of 
the Act, has been made available before additional resources are 
allocated to raise the community spouse's income to the minimum monthly 
maintenance needs allowance.
    (2) Resources-first method. The State allocates to the community 
spouse additional income-producing resources to raise the community 
spouse's income to the minimum monthly maintenance needs allowance 
without first considering all income of the institutionalized spouse 
that could be made available to the community spouse as if it has been 
made available.

    (Catalog of Federal Domestic Assistance Program No. 93.778, 
Medical Assistance Program)

    Dated: August 28, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: August 30, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-22605 Filed 9-6-01; 8:45 am]
BILLING CODE 4120-01-P