[Federal Register Volume 72, Number 151 (Tuesday, August 7, 2007)]
[Notices]
[Pages 44146-44149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15321]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary


Final Notice; Implementation of Section 6053(b) of the Deficit 
Reduction Act for Fiscal Year 2008 FMAP

AGENCY: Office of the Secretary, DHHS.

ACTION: Final notice.

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SUMMARY: This notice describes the procedure utilized for implementing 
Section 6053(b) of the Deficit Reduction Act of 2005, Public Law 109-
171 for fiscal year 2008. Section 6053(b) of the Deficit Reduction Act 
provides for a modification of the Federal Medical Assistance 
Percentages for any state which has a significant number of evacuees 
from Hurricane Katrina. This notice also includes an interpretation of 
evacuee. HHS issued a notice on January 25, 2007, announcing for public 
comment, a proposed methodology to implement the requirements of 
Section 6053(b). The notice allowed 30 days for public comment. We 
received one timely comment from the Texas Health and Human Services 
Commission. The comment letter contained several suggestions which are 
summarized and responded to below.

DATES: The figures described in this notice apply to FY 2008.

[[Page 44147]]


FOR FURTHER INFORMATION CONTACT: Thomas Musco or Robert Stewart, Office 
of Health Policy, Office of the Assistant Secretary for Planning and 
Evaluation, Room 447D--Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201, (202) 690-6870.

SUPPLEMENTARY INFORMATION:

A. Background

    Federal Medical Assistance Percentages (FMAP) are used to determine 
the amount of Federal matching for state expenditures for assistance 
payments for certain social services such as Temporary Assistance for 
Needy Families (TANF) Contingency Funds, matching funds for the Child 
Care and Development Fund, Title IV-E Foster Care Maintenance payments, 
Adoption Assistance payments, and state medical and medical insurance 
expenditures for Medicaid and the State Children's Health Insurance 
Program (SCHIP).
    Sections 1905(b) and 1101(a)(8)(B) of the Social Security Act 
require the Secretary of Health and Human Services to publish the 
Federal Medical Assistance Percentages each year. The Secretary is to 
calculate the percentages, using formulas in sections 1905(b) and 
1101(a)(8)(B), from the Department of Commerce's statistics of average 
income per person in each state and for the Nation as a whole. The 
percentages are within the upper and lower limits given in section 
1905(b) of the Act. The percentages to be applied to the District of 
Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and 
the Northern Mariana Islands are specified in statute, and thus are not 
based on the statutory formula that determines the percentages for the 
50 states. The ``Federal Medical Assistance Percentages'' are for 
Medicaid.
    The ``enhanced FMAP'' (EFMAP), for a state for a fiscal year, is 
equal to the Federal Medical Assistance Percentage (as defined in the 
first sentence of section 1905(b)) for the state increased by a number 
of percentage points equal to 30 percent of the number of percentage 
points by which (1) such Federal medical assistance percentage for the 
state, is less than 100 percent; (2) but in no case shall the enhanced 
FMAP for a state exceed 85 percent.
    The ``Enhanced Federal Medical Assistance Percentages'' are for use 
in the State Children's Health Insurance Program under Title XXI, and 
in the Medicaid program for certain children for expenditures for 
medical assistance described in sections 1905(u)(2) and 1905(u)(3) of 
the Social Security Act. On November 30, 2006, at 71 FR 69209, we 
published the FMAP and Enhanced FMAP rates for each state for October 
1, 2007 through September 30, 2008 (fiscal year 2008).

B. Section 6053(b) of the DRA

    Section 6053(b) of the Deficit Reduction Act (DRA) of 2005 requires 
that calculations used in computing the FMAPs disregard evacuees and 
any income attributable to them who were evacuated to and live in a 
state, other than their state of residence, as of October 1, 2005 as a 
result of Hurricane Katrina. The DRA defines ``evacuee'' as ``an 
affected individual who has been displaced to another state'' (Sec. 
6201(b)(3)). This provision applies to any state that the Secretary of 
HHS determines has a significant number of Katrina evacuees.
    The modification of the Federal Medical Assistance Percentages and 
the Enhanced Federal Medical Assistance Percentages under the DRA 
affect only medical expenditure payments under Title XIX and 
expenditure payments for the State Children's Health Insurance Program 
under Title XXI. The Department believes that the percentages in this 
rule do not apply to payments under Title IV of the Social Security 
Act. In addition, the Title XIX statute provides separately for Federal 
matching of administrative costs, which is not affected by the subject 
Deficit Reduction Act provision.
    Section 6053(b) applies to calculations for FMAPs for any year 
after 2006. The underlying data that serve as the basis for the FMAP 
calculations are produced by the Department of Commerce's Bureau of 
Economic Analysis (BEA). Section 1101(a)(8)(B) requires FMAP 
calculations to be determined using data from the Department of 
Commerce. Therefore, the standard practice in the calculation of the 
FMAPs is to utilize the most up-to-date BEA state per capita income 
data. The Fiscal Year 2008 FMAPs, which were published on November 30, 
2006 use the state per capita income estimates for 2003-2005. The first 
year that the relevant data--state per capita personal income 
estimates--would show any impact related to Hurricane Katrina is 2005, 
since Hurricane Katrina occurred in August 2005. Therefore, this notice 
proposes to implement Section 6053 (b) of the DRA starting with the 
Fiscal Year 2008 FMAPs, since the 2008 FMAP calculation will be the 
first year to include 2005 data.
    On January 25, 2007 at 72 FR 3391, we proposed a methodology to 
implement Section 6053(b) of the Deficit Reduction Act that would take 
advantage of the way in which state population is usually calculated. 
HHS believes this methodology would comply with our understanding of 
Congressional intent in the first year, and raise the FMAP slightly for 
any affected state.

C. Proposed Methodology

    Section 6053(b) of the Deficit Reduction Act (DRA) of 2005 requires 
that calculations used in computing the FMAPs disregard evacuees and 
any income attributable to them who were evacuated to and live in a 
state, other than their state of residence, as of October 1, 2005 as a 
result of Hurricane Katrina. The DRA defines ``evacuee'' as ``an 
affected individual who has been displaced to another state'' (Sec. 
6201(b)(3)). This provision applies to any state that the Secretary of 
HHS determines has a significant number of Katrina evacuees.
    The first adjustment that must take place under Section 6053(b) of 
the DRA is to the state population estimate by removing all Katrina 
evacuees in each state that were evacuated across state lines.
    Because the state population estimates used in the 2005 Per Capita 
Personal Income estimates are from July 1, 2005, which is prior to 
Hurricane Katrina, these Katrina evacuees do not appear in the data 
that is the basis for the state population estimates for any state 
covered by this provision. Thus, while Section 6053(b) of the DRA 
requires it, no adjustment to this data is necessary to disregard 
Katrina evacuees.
    The second adjustment that must take place under Section 6053(b) of 
the DRA is to state personal income by removing all income that is 
attributed to Katrina evacuees. Implementing Section 6053(b) is complex 
because the data related to personal income are not detailed enough to 
fully conform to all of the provision's requirements (see the detailed 
explanation of considerations mentioned in the Federal Register notice 
of January 25, 2007 at 72 FR 3391).
    The methodology to adjust for income proposes (see 72 FR 3391) to 
include the available data on FEMA disaster assistance adjustments and 
interstate population dispersal adjustments (BEA's estimate of 
governmental transfer receipts that were paid to Hurricane Katrina 
evacuees while they were living in the states to which they had been 
evacuated). Transfer receipts include payments such as Medicaid or 
TANF.
    BEA estimates these interstate population dispersal adjustments 
based on the evacuee population that moved

[[Page 44148]]

across state lines after the hurricane, and the average transfer 
payment per evacuee. The evacuee population is based on the FEMA 
Current Location Report.
    The methodology described above (and in more detail at 72 FR 3391) 
was used to make FMAP adjustments to accommodate the requirements of 
Section 6053(b) with the available data. The calculations this year 
result in a positive impact on any affected state (i.e., increasing 
FMAPs). It is unclear what effect Section 6053(b) will have on future 
years should this provision carry forward beyond fiscal year 2008.
    According to Section 6053(b), the Secretary of HHS must apply this 
provision to any state that the Secretary determines has a significant 
number of Katrina evacuees. However, the statute provides HHS no 
guidance on how to determine what number of evacuees constitutes a 
``significant number.'' As a result, HHS attempted to provide an 
objective means to determine a ``significant number'' of evacuees.
    HHS had chosen to determine significance by calculating the numbers 
of evacuees beyond two standard deviations from the mean of all states' 
number of evacuees. Measures of significance generally involve how 
observations vary in their distance from the average of all 
observations in their particular group. In this case, the observations 
are the number of evacuees relocated to each of the respective states. 
A measure used frequently to determine significance is the standard 
deviation from the mean or average. We proposed to use as the measure 
of a significantly affected state those that incurred an influx of 
evacuees greater than twice the standard deviation from the mean of all 
states.
    Using the BEA estimates for the number of evacuees relocated to 
each state (except as noted below for Louisiana) we calculated an 
average influx of evacuees for all states of 7,159. The distribution of 
evacuees into all states around this average produces a standard 
deviation of 22,375. Therefore, we propose to apply the provisions of 
Section 6053(b) to any state with an influx of evacuees greater than 
51,909 (the mean plus two standard deviations). This methodology 
specified only Texas, with 154,018 evacuees, had such a significant 
influx of evacuees.
    Therefore, we proposed to apply Section 6053(b) to Texas. Because 
the DRA defines ``evacuee'' as ``an affected individual who has been 
displaced to another state'' (Sec. 6201(b)(3)), we proposed that 
Louisiana not be considered an affected state. Although there were 
intra-state evacuations within Louisiana, the provision is intended to 
apply only to any state that took in a significant number of evacuees 
from another state.
    Using the methodology described above, we calculated revised FMAPs 
and EFMAPs for 2008. The table below presents the 2008 FMAPs and the 
revised 2008 FMAPs with the proposed adjustment, and the 2008 EFMAPs 
and the revised 2008 EFMAPs.

------------------------------------------------------------------------
                                                              2008 with
                     Texas                       Calculated    proposed
                                                    2008      adjustment
------------------------------------------------------------------------
FMAP..........................................        60.53        60.56
EFMAP.........................................        72.37        72.39
------------------------------------------------------------------------

    As seen in the tables above, applying the proposed adjustment 
increased the FMAP and EFMAP for Texas.

D. Analysis of and Response to Public Comments on the Proposed 
Methodology

    In reviewing and responding to comments, HHS consulted with 
individuals internal to HHS and individuals at the Commerce Department.
    Comment: Mitigate the ``mismatch'' between population and income 
estimates by adjusting downward total income for Texas to eliminate 
income associated with Katrina evacuees. Personal income for Texas 
should be adjusted by removing approximately $4.7 billion in personal 
income attributable to Katrina evacuees. The rationale provided states 
that income and wages of Katrina evacuees are not included in the 
proposed adjustment, nor are the use of savings and contributions from 
charitable sources. Additionally, Texas states that per capita income 
increased in FY 2005 by more than historical averages.
    Response: As described in the proposed methodology, both income and 
population must be taken into account to implement Section 6053(b) of 
the DRA.
    No methodology is provided by Texas for the arrival at the estimate 
of income attributable to Katrina evacuees in Texas. BEA could not 
provide separable income estimates for segments of state populations as 
a verifiable source to replicate the findings. Further, several of the 
funding sources cited by Texas are not sources that would affect per 
capita income (use of savings accounts and charitable contributions). 
The amount of income Texas suggests be eliminated as attributable to 
Katrina evacuees would indicate a per capita income for these evacuees 
of in excess of $30,000 per year, when in fact these individuals were 
relocated to other states for only about one-third of the 2005 year.
    Additionally, an increase in per capita income in a particular year 
may have multiple factors contributing to the increase. A review of BEA 
data on state per capita income levels for Texas over the past two 
decades shows the 2005 increase is not unusual. Texas experienced peaks 
in year to year per capita percent changes in 1990, 1997, and 2000 at 
rates of change greater than that experienced in 2005.
    Comment: An alternate to adjusting Texas total income is to adjust 
upward Texas' population to reflect the number of Katrina evacuees 
residing in Texas after July 1, 2005. Adjust the population estimate 
for Texas by adding 154,018 Katrina evacuees to the 2005 state 
population estimate.
    Response: As required by Section 6053(b) of the DRA, and reiterated 
above, the methodology for implementing this provision specifically 
indicates that calculations used in computing the FMAPs disregard 
evacuees and any income attributable to them. The addition to a state's 
population of any number attributable to Katrina evacuees is not 
consistent with the statute.

E. Time Frame for the DRA Adjustment

    In the January 25, 2007 Federal Register notice, we noted that 
Section 6053(b) does not provide an express sunset for the FMAP 
adjustments even though it did not seem reasonable to make such 
adjustments in perpetuity. We indicated that it was not reasonable to 
consider individuals to be evacuees long after they may have 
established residency and employment in their host state. We expressed 
concern that data to accurately identify the number of evacuees and 
their income, already difficult to obtain, would be unavailable and/or 
unreliable. And we observed that compliance with Section 6053(b) of the 
DRA could have a negative impact on qualifying states in years beyond 
FY 2008, which could not have been intended by Congress.
    Because of the above, HHS proposed several approaches to interpret 
the term ``evacuee'' narrowly to ensure that an adjustment is made only 
to the extent warranted to address the sudden influx directly resulting 
from Hurricane Katrina. We suggested three alternative approaches which 
were offered for public comment: (1) Consider individuals to be 
Hurricane Katrina evacuees for up to 18 months following displacement 
to another state, (2) consider an individual to be an evacuee while 
receiving FEMA Hurricane Katrina assistance, and (3) consider

[[Page 44149]]

individuals to be evacuees while reliable data remains available and 
sufficient to identify evacuees and their income in order to carry out 
the provisions of the DRA.
    While no comments were received on any of the proposed HHS 
definitions of an evacuee or offers of alternative definitions, HHS 
examined each of the approaches identified above in reaching a decision 
on the interpretation of an evacuee and its potential impact on future 
FMAP calculations.
    While approach 1 uses a specific time frame (18 months following 
evacuation), the time frame itself is arbitrary and we believe it is 
unreasonable to consider a person to be considered an evacuee once they 
have established residency and become integrated into the economy of 
their host state. Former Katrina evacuees will now be reported by their 
place of residence for 2006 and beyond, no longer separately identified 
as Katrina evacuees, and will be included in the population and income 
estimates collected by BEA for their states of residence.
    HHS has learned that approach 2 (FEMA assistance) will not be 
viable because Katrina FEMA assistance will not be separately 
identified from all other FEMA assistance to identify evacuees beyond 
that which was provided for 2005.
    Because of the practical difficulty in calculating an adjustment, 
we are adopting the third approach, limiting the definition of evacuee 
to the time period for which reliable data remains available, because 
the existence of reliable data is essential to identifying individuals 
as evacuees. It is clear from the current effort to comply with the DRA 
provisions that data to support the calculations is limited at best. 
While information on the number of Katrina evacuees has been available, 
data on income attributed to evacuees has been extremely limited. BEA, 
which collects the data upon which FMAP calculations are made, was 
limited in its ability to isolate income data for Katrina evacuees. 
Only some of the interstate income data, such as governmental transfer 
receipts (TANF, Medicaid, etc.), attributable to Katrina evacuees was 
available, while none of a state(s)' wages and salaries paid to Katrina 
evacuees who moved to the host state could be isolated to determine 
personal income data for these evacuees. It was therefore technically 
difficult to perform the calculations for the current year.
    We do not believe that reliable data will be available to track 
either the number or the income of evacuees to make calculations for 
the FMAP beyond FY 2008. It is our understanding that BEA will not 
undertake any continuing state estimates of the number of Katrina 
evacuees or income attributed to them beyond what already has been done 
for 2005.
    Moreover, we believe the adjustment time frame is sufficiently long 
for individuals to become an integral part of, with economic and social 
ties to, the State in which they have been present. We continue to 
believe that the intent of the statutory adjustment was to relieve the 
temporary burden on host states of a sudden influx of evacuees who were 
not integrated into the host state economy. Thus we believe it is 
unreasonable to consider a person to be an evacuee once they have 
established residency and become integrated into the economy in their 
host state.
    For the above reasons, HHS has determined to interpret the term 
``evacuee'' to be limited to the time period for which reliable data is 
available on the number and income of evacuees. Based on our current 
understanding of the available data sources, this interpretation means 
that there would be no basis for performing the calculations specified 
in Section 6053(b) of the DRA beyond the current year calculations for 
the FY 2008 FMAP.

F. Final FMAP and EFMAP Percentages for State(s) Affected by Hurricane 
Katrina

    Based on the findings of our review of the comments received, we 
believe the methodology as described herein, and in more detail at 72 
FR 3391, is the most appropriate method, given the available 
information, for implementing Section 6053(b) of the DRA. As such, only 
the FMAP and EFMAP percentages for the state of Texas are affected.
    The percentages for Texas are as follows:

------------------------------------------------------------------------
                                                              2008 with
                                                 Calculated   adjustment
                     Texas                          2008     for Section
                                                               6053(b)
------------------------------------------------------------------------
FMAP..........................................        60.53        60.56
EFMAP.........................................        72.37        72.39
------------------------------------------------------------------------

G. Effective Dates

    The percentages listed will be effective for each of the four (4) 
quarter-year periods in the period beginning October 1, 2007 and ending 
September 30, 2008 (fiscal year 2008).

(Catalog of Federal Domestic Assistance Program Nos. 93.778: Medical 
Assistance Program; 93.767: State Children's Health Insurance 
Program)

    Dated: May 21, 2007.
Michael O. Leavitt,
Secretary of Health and Human Services.
[FR Doc. E7-15321 Filed 8-6-07; 8:45 am]
BILLING CODE 4150-05-P