[Federal Register Volume 73, Number 36 (Friday, February 22, 2008)]
[Proposed Rules]
[Pages 9714-9727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-3206]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 440

[CMS-2232-P]
RIN 0938-A048


Medicaid Program; State Flexibility for Medicaid Benefit Packages

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement provisions of section 6044 
of the Deficit Reduction Act of 2005, Pub. L. 109-171, which amends the 
Social Security Act by adding a new section 1937 related to the 
coverage of medical assistance under approved State plans. Under this 
new section, States have increased flexibility under an approved State 
plan to define the scope of covered medical assistance by offering 
coverage of benchmark or benchmark-equivalent benefit packages to 
certain Medicaid recipients.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. March 24, 2008.

ADDRESSES: In commenting, please refer to file code CMS-2232-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-2232-P, P.O. Box 8016, Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-2232-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Donna Schmidt, (410) 786-5532.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-2232-P and the specific ``issue identifier'' that precedes the 
section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also 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 1-800-743-3951.

I. Background

    Under title XIX of the Social Security Act (the Act), the Secretary 
is

[[Page 9715]]

authorized to provide funds to assist States in furnishing medical 
assistance to needy individuals whose income and resources are 
insufficient to meet the costs of necessary medical services, including 
families with dependent children and individuals who are aged, blind, 
or disabled. To be eligible for funds under this program, States must 
submit a State plan, which must be approved by the Secretary. Programs 
under title XIX are jointly financed by Federal and State governments. 
Within broad Federal guidelines, each State determines the design of 
its program, eligible groups, benefit packages, payment levels for 
coverage and administrative and operating procedures.
    Before the passage of the Deficit Reduction Act (DRA), States were 
required to offer at minimum a standard benefit package to eligible 
populations identified in section 1902(a)(10)(A) of the Act (with some 
specific exceptions, for example, for certain pregnant women, who could 
be limited to pregnancy-related services). Under section 1902(a)(10)(A) 
of the Act, this standard benefit package had to include certain 
specific benefits identified in the definition of ``medical 
assistance'' at section 1905(a) of the Act. These identified benefits 
include inpatient and outpatient hospital services, physician services, 
medical and surgical services furnished by a dentist, rural health 
clinic services, federally qualified health center services, laboratory 
and X-ray services, nursing facility services, early and periodic 
screening, diagnostic and treatment services for individuals under age 
21, family planning services to individuals of child-bearing age, 
nurse-midwife services, certified pediatric nurse practitioner, and 
certified family nurse practitioner services. Under section 
1902(a)(10)(D) of the Act, the standard benefit package is also 
required to include home health services.
    Section 6044 of the Deficit Reduction Act of 2005 (DRA) (Pub. L. 
109-171, enacted on February 8, 2006), amended the Act by adding a new 
section 1937 that allows States to amend their Medicaid State plans to 
provide for the use of benefit packages other than the standard benefit 
package, namely benchmark benefit packages or benchmark-equivalent 
packages, for certain populations. The statute delineates what benefit 
packages qualify as benchmark packages and what would constitute a 
benchmark-equivalent package. The statute also specifies those exempt 
populations that may not be included or mandated in the benchmark 
coverages. To be eligible for funds under this new provision, States 
must submit a State plan amendment, which must be approved by the 
Secretary.
    This proposed rule would incorporate and integrate into Centers for 
Medicare & Medicaid Services (CMS) regulations the statutory framework 
for alternative benchmark packages.

II. Provisions of the Proposed Rule

    [If you choose to comment on issues in this section, please include 
the caption ``PROVISIONS OF THE PROPOSED RULE'' at the beginning of 
your comments.]
    By creating section 1937 of the Act, we believe the Congress 
intended to provide States unprecedented flexibility within Medicaid 
State Plans to provide health benefits coverage. This authority, 
created by section 6044 of the DRA, allows States broad flexibility to 
develop innovative health coverage plans for Medicaid recipients. 
States may create more mainstream packages like those found in the 
private insurance market by implementing health benefit packages 
mirroring employer sponsored group health plans.
    These flexibilities give States new opportunities to provide 
benefit plans to meet the health care needs of Medicaid populations 
while maintaining the sustainability of the program. For the first time 
in the State plan, States may create innovative Medicaid programs that 
further strengthen and support the overall health care system. States 
now have the tools they need to provide person-centered care to 
maximize health outcomes for individuals. These tools may be used in 
conjunction with other title XIX and XXI authorities and other 
programs, to strategically align the Medicaid Program with today's 
healthcare environment to expand access to affordable mainstream 
coverage; to promote personal responsibility for health and accessing 
health care; and to improve quality and coordination of care.
    The enactment of this provision of the DRA gave States new options 
to create programs that are more aligned with the needs of today's 
Medicaid populations and the health care environment. States may use 
this flexibility to capitalize on the strengths of their existing 
health care systems by incorporating and building upon the private 
insurance market. Additionally, we encourage States to use these 
flexibilities to shape innovations in the health care marketplace. The 
authority under this provision creates great opportunities for States 
to focus the health care system on delivering person-centered health 
care for all individuals. States will be able to reconnect families 
receiving health care through Medicaid to the larger insurance system 
that serves most Americans and promote continuity of coverage. This in 
turn will strengthen the private market and assist in creating better 
access to health care in the State.
    Section 1937 of the Act gives States greater control over the 
administration of their Medicaid programs by moving innovative programs 
into State plans. This in turn, provides States with ease in leveraging 
the private market forces to provide care to Medicaid recipients in 
much the same way this care is provided to those with benefits through 
private insurance.
    We began issuing guidance about the new flexibilities available to 
States within months of the enactment of the DRA. For example, on March 
31, 2006, we issued a State Medicaid Director letter providing guidance 
on the implementation of section 6044 of the DRA. This proposed rule is 
consistent with that guidance.
    Under section 1937 of the Act, a State may require that medical 
assistance to individuals, within one or more groups of individuals 
specified by the State, be provided through enrollment in a benchmark 
or benchmark-equivalent benefit coverage package. A State has the 
option to amend its State plan to provide benchmark or benchmark-
equivalent coverage without regard to comparability, statewideness, 
freedom of choice, the assurance of transportation to medically 
necessary services and other requirements in order to tailor and 
provide the coverage to the individuals. The purpose of this section, 
as indicated in the title of section 6044 of the DRA, was to provide 
States with increased flexibility. In order to maximize that 
flexibility, we are proposing to interpret the statutory clause 
``notwithstanding any other provision of this title'' to relieve States 
of the responsibility to assure transportation to and from providers, 
which is the regulatory requirement at 42 CFR 431.53 that is based on 
sections 1902(a)(4) and 1902)(a)(19) of the Act. The statute provides 
benchmark options available to States that are equivalent to those 
found in the private health insurance market. Generally, private health 
insurance plans do not offer non-emergency medical transportation as a 
benefit to enrollees. It would be a strong disincentive for States to 
offer benchmark coverage through private health insurance plans if 
States had to supplement benchmark benefit plans with additional 
transportation benefits. We are therefore proposing to exempt States 
that elect benchmark coverage from the transportation assurance 
requirement. This provides maximum

[[Page 9716]]

flexibility to states and is consistent with the stated purpose of 
section 6044.
    Populations Affected. Benchmark or benchmark-equivalent coverage 
packages may only be offered to individuals whose eligibility is based 
on an eligibility category of the Act that would have been covered 
under the State's plan on or before the enactment of the DRA on 
February 8, 2006. We are interpreting the statutory term ``eligibility 
category'' in this rule to mean an eligibility category listed under 
section 1905(a) of the Act, in order to maximize State flexibility. All 
recipients within a covered category would be eligible to participate 
in a benchmark plan at the State's option, unless specifically exempted 
by statute as discussed below, even when the State makes modifications 
to the income and resource eligibility levels for a group or groups 
under such an eligibility category after February 8, 2006.
    A State may require recipients to obtain benefits by enrolling in 
benchmark or benchmark-equivalent coverage only if they are ``full 
benefit eligibles.'' A full benefit eligible is an individual who would 
otherwise be eligible to receive the standard full Medicaid benefit 
package under the approved Medicaid State plan, but does not include 
individuals determined eligible by the State for medical assistance 
under section 1902(a)(10)(C) of the Act, or by reason of section 
1902(f) of the Act, or otherwise eligible based on a reduction of 
income based on costs incurred for medical or other remedial care 
(medically needy and spend-down populations).
    The statute also specifies other individuals who are also exempt 
from being required to enroll in benchmark or benchmark-equivalent 
benefit coverage. These individuals include:
     A pregnant woman who is required to be covered under the 
State plan under section 1902(a)(10)(A)(i) of the Act;
     A recipient qualifying for medical assistance under the 
State plan on the basis of being blind or disabled (or being treated as 
being blind or disabled) without regard to whether the individual is 
eligible for Supplemental Security Income (SSI) benefits under title 
XVI on the basis of being blind or disabled and including an individual 
who is eligible for medical assistance on the basis of section 
1902(e)(3) of the Act;
     A recipient entitled to benefits under any part of 
Medicare;
     A terminally ill recipient receiving benefits for hospice 
care under title XIX;
     A recipient who is an inpatient in a hospital, nursing 
facility, intermediate care facility for the mentally retarded, or 
other medical institution, and is required, as a condition of receiving 
services in such institution under the State plan, to spend for costs 
of medical care all but a minimal amount of the individual's income 
required for personal needs;
     A recipient who is medically frail or otherwise an 
individual with special medical needs (as described by the Secretary);
     A recipient qualifying based on medical condition for 
medical assistance for long-term care services described in section 
1917 (c)(1)(C) of the Act;
     A recipient with respect to whom aid or assistance is made 
available under part B of title IV to children in foster care or with 
respect to whom adoption or foster care assistance is made available 
under part E of title IV, without regard to age;
     A recipient qualifying for medical assistance on the basis 
of eligibility to receive assistance under a State plan funded under 
part A of title IV (as in effect on or after welfare reform effective 
date defined in section 1931(i) of the Act);
     Recipients eligible based on the diagnosis of breast or 
cervical cancer by virtue of the application of sections 
1902(a)(10)(ii)(XVIII) and 1902(aa) of the Act; and
     Recipients who receive limited services because they are 
eligible only under section 1902(a)(10)(A)(ii)(XII) of the Act because 
they are TB-infected, or because they are not qualified aliens (as 
defined in section 431 of the Personal Responsibility and Work 
Opportunity Reconciliation Act (PRWORA) of 1996 (Pub. L. 104-193, 
enacted on August 22, 1996) and receive only the care and services 
necessary for the treatment of an emergency medical condition in 
accordance with section 1903(v) of the Act.
    For purposes of the exempted populations under section 1937 of the 
Act, the Secretary is proposing in Sec.  440.315(f) to define 
individuals with special medical needs to include those groups defined 
by Federal regulations at 42 CFR 438.50(d)(1) and Sec. 438.50(d)(3) of 
the managed care regulations. These groups are: dual eligibles and 
certain children under age 19 who are eligible for Supplemental 
Security Income (SSI); children eligible under section 1902(e)(3) of 
the Act/Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 
children; individuals in foster care or other out of home placement; 
individuals receiving foster care or adoption assistance; or 
individuals receiving services through a family-centered, community-
based, coordinated care system that receives grant funds under section 
501(a)(1)(D) of title V, as defined by the State in terms of either 
program participation or special health care needs.
    There may be instances when an exempted individual may benefit from 
enrolling in a benchmark or benchmark-equivalent benefit package. 
States are permitted to offer these individuals a benchmark or 
benchmark-equivalent package, but may not require them to enroll in 
one. In any case in which a State offers an individual the option to 
enroll in a benchmark or benchmark-equivalent benefit package, the 
State must inform the individual that the enrollment is voluntary and 
that he or she may opt out at any time. In addition, the State must 
inform the individual of the benefits available under the benchmark or 
benchmark-equivalent benefit package, provide a comparison of how they 
differ from the benefits available under the regular Medicaid program, 
and must document that the individual was informed.
    Generally, we would expect that the benchmark or benchmark 
equivalent plan would have sufficient enrollment capacity for eligible 
individuals. However, there may be circumstances when it is beneficial 
for the State to limit enrollment or when the benchmark or benchmark-
equivalent plan would not have the capacity to enroll all interested 
and eligible individuals. In these instances, the State would maintain 
selection criteria for such plans based on factors such as geography or 
date of application that are not related to health status. The State 
would provide otherwise available benefits to individuals under the 
State plan, which may include the option of enrolling in another 
benchmark or benchmark-equivalent plan. And, if applicable, the State 
would have a system under which recipients already enrolled in the 
benchmark or benchmark equivalent plan are given priority to continue 
enrollment if the plan does not have the capacity to accept all those 
seeking enrollment under the program.
    Benefit Packages. Under section 1937 of the Act, benchmark coverage 
is either Federal Employees Health Benefit Plan Equivalent Health 
Insurance Coverage; State Employee Coverage; a Health Maintenance 
Organization (HMO) plan that has the largest insured commercial, non-
Medicaid enrollment in the State; or Secretary approved coverage. 
Secretary approved coverage is any other health benefits coverage that 
the Secretary determines, upon application by a State, provides 
appropriate

[[Page 9717]]

coverage for the population proposed to be provided this coverage.
    In determining the coverage available under a benchmark coverage 
package, we do not consider cost sharing to be a limitation on the 
coverage (even when the benchmark plan itself does so). Thus, for 
example, if the selected benchmark plan document indicates that it 
provides coverage for only half of the cost of mental health services, 
we view that as a coinsurance requirement rather than as a limitation 
on coverage. Cost sharing and premiums for recipients may not exceed 
cost sharing limits under the State's plan with respect to sections 
1916 and 1916A of the Act. The State would assure that all out of 
pocket costs for the recipients do not exceed the applicable limits. 
However, benchmark and benchmark-equivalent benefit packages may 
include annual coverage limitations on the numbers and types of 
particular services.
    In determining whether a proposed health benefits coverage package 
should be Secretary approved because it provides appropriate health 
benefits coverage for the proposed population, we would require that 
States submit full descriptions of the proposed coverage, including 
comparisons to one of the benchmark plans or to the State's standard 
full Medicaid coverage package under section 1905(a) of the Act. In 
addition, the State would submit any other information that would be 
relevant to a determination that the proposed health benefits coverage 
would be appropriate for the proposed population. The scope of a 
Secretary-approved health benefits package will be limited to benefits 
within the scope of the categories available under a benchmark coverage 
package or the standard full Medicaid coverage under section 1905(a) of 
the Act.
    In determining Secretary approved coverage, a State may consider a 
benefit package for a specific population that excludes a certain 
category of service. For example, a State may utilize a Secretary 
approved package that is benchmarked to the State employees benefit 
package which does not include pregnancy-related services. This would 
be appropriate where the targeted population is a population group that 
does not require such category of service--for instance non-pregnant 
adults. If an individual within the targeted population group enrolled 
in the Secretary approved benefit was initially eligible through a 
category targeted for the Secretary approved coverage, but later 
qualified for Medicaid through a group excluded from mandatory 
enrollment (e.g., non-pregnant female enrolled in the Secretary 
approved benefit becomes pregnant and qualifies under the State plan 
under section 1902(a)(10)(A)(i)), such individual must have the 
opportunity to receive state plan services not available through the 
benchmark and must be given the choice to remain in the Secretary 
approved benchmark or revert to traditional Medicaid. In either event, 
the individual must be provided the State plan services not available 
through the benchmark through either wrap around coverage to the 
Secretary approved benefit or by virtue of reverting back to 
traditional Medicaid.
    A State may elect to offer one or more benchmark coverage options. 
The State may also specify in the State plan criteria establishing the 
benchmark options, if any, available for any specific group of 
recipients. For example, the State plan may identify groups of 
recipients who receive benefits through a Federal Employees Health 
Benefit Plan (FEHBP) benchmark coverage plan and may identify other 
groups who receive benefits through a State Employee Coverage benchmark 
coverage plan.
    A State may also elect to offer benchmark-equivalent benefit 
coverage. Coverage would be considered benchmark-equivalent coverage if 
it has an aggregate actuarial value equivalent to a benchmark plan 
described above, and it includes the following basic categories of 
service: inpatient and outpatient hospital services; physicians' 
surgical and medical services; laboratory and x-ray services; well-baby 
and well-child care, including age-appropriate immunizations; and other 
appropriate preventive services.
    In addition to the categories of services set forth above, 
benchmark-equivalent coverage may include coverage of additional health 
benefits in categories of services included in the benchmark package or 
described in section 1905(a) of the Act. If the benchmark coverage 
package used by the State as a basis for comparison in establishing the 
aggregate actuarial value of the benchmark-equivalent package includes 
the following four categories of services: prescription drugs; mental 
health services; vision services; and hearing services; then the 
actuarial value of the coverage for each of these categories of service 
in the benchmark-equivalent coverage package must be at least 75 
percent of the actuarial value of the coverage for that category of 
service in the benchmark plan used for comparison by the State. If the 
benchmark coverage package does not cover one of the additional four 
categories of services, then the benchmark-equivalent coverage package 
may, but is not required to, include coverage for that category of 
service.
    As a condition of approval of benchmark-equivalent coverage, the 
State must provide an actuarial report with an actuarial opinion that 
the benchmark-equivalent coverage meets the actuarial requirements.
    Benchmark or benchmark-equivalent benefit coverage may be offered 
through employer sponsored health plans for individuals with access to 
private health insurance. For example, if an individual has access to 
employer sponsored coverage and that coverage is determined by the 
State to offer a benchmark or benchmark-equivalent benefit package 
(either alone or with the addition of wrap-around services covered 
separately under Medicaid), a State may elect to provide premium 
payments on behalf of the recipient to purchase the employer coverage. 
The State may also provide premium payments on behalf of the recipient 
to purchase private health insurance coverage. The premium payments 
would be considered medical assistance, the State could require the 
recipient to enroll in the group health plan, and the resulting 
coverage would comprise the Medicaid benefit. In addition, cost sharing 
for recipients should not exceed cost sharing limits under the State's 
plan with respect to sections 1916 and 1916A of the Act.
    The State must make available to recipients under age 19 who are 
covered under the State plan under section 1902(a)(10)(A) of the Act 
benefits consisting of Early and Periodic Screening, Diagnostic, and 
Treatment (EPSDT) services which are medically necessary for that 
individual as defined in section 1905(r) of the Act. For those 
individuals who are enrolled in benchmark coverage, the individual must 
seek coverage through the benchmark plan before seeking wrap-around 
benefits from the State. As always, medical necessity as determined by 
the State guides the delivery of EPSDT services. A State must also 
assure that individuals in a benchmark or benchmark-equivalent plan 
have access, through that coverage or otherwise, to rural health clinic 
services and federally qualified health center (FQHC) services.
    Under section 1937(a)(1)(C) of the Act, States have the option to 
provide additional or wrap-around services to the benchmark or 
benchmark-equivalent plans. The wrap-around services do not need to 
include all State plan services. However, the State plan must describe 
the populations covered and the

[[Page 9718]]

procedures for assuring those services. We interpret the term 
``additional or wrap-around services'' to mean health benefits that are 
of the same type as those covered under the benchmark or considered to 
be health benefits under the Medicaid statute. We propose in Sec.  
440.360 that additional or wrap-around services must be within the 
scope of categories of services covered under the benchmark plan, or 
described in section 1905(a) of the Act.
    Generally, we would expect that the benchmark or benchmark 
equivalent plan would have sufficient enrollment capacity for eligible 
individuals. However, because benchmark and benchmark equivalent plans 
are not bound by comparability, statewideness, freedom of choice, the 
assurance of transportation to medically necessary services and other 
requirements of title XIX of the Act, there may be a circumstance, 
particularly in rural areas, when a plan is not capable of enrolling 
all interested and eligible individuals. In this instance, the State 
must have a process for enrolling the individual in an alternate 
option. If applicable, the State must have a system under which 
recipients already enrolled in the benchmark or benchmark equivalent 
plan are given priority to continue enrollment if the plan does not 
have the capacity to accept all those seeking enrollment under the 
program.
    Program Integrity. We propose to establish in Sec.  440.370 of this 
regulation that States are required to implement benchmark coverage in 
a cost effective and efficient manner. While section 1937 of the Act is 
premised with a provision that states notwithstanding any other 
provision of this title, we do not believe that the Congress intended 
to permit States to bypass efficiency and effectiveness rules that were 
tightened up in other sections of title XIX. Therefore, we are 
clarifying that States must deliver benchmark benefits in a manner that 
is cost effective and efficient. States may not use this provision to 
recycle funds or deliver services to the detriment of the Federal/State 
partnership. Benchmark or benchmark-equivalent coverage and any 
additional benefits must be provided in accordance with economy and 
efficiency principles that would otherwise be applicable to the 
services or delivery system through which the coverage and benefits are 
obtained. In other words, if benchmark coverage is provided on a fee-
for-service basis, the same upper payment limits would apply to each 
service as to these services under standard full Medicaid coverage. 
Similarly, the same procurement requirements, or other economy or 
efficiency principles would apply to this coverage as would apply to 
the purchase of managed care coverage as under the managed care rules 
at part 438 of our regulations.
    To achieve economy and efficiency, States may use a variety of 
delivery systems for benchmark and benchmark-equivalent coverage. 
States may furnish benefits using one or more of the following: a fee-
for-service delivery system, a fee-for-service delivery system operated 
with a primary care case management system, a managed care delivery 
system, or through premium assistance.
    The State may use a selective procurement process to restrict the 
managed care entity or other provider from (or through) whom a 
recipient can obtain services, except in emergency situations. The 
selected provider must meet the reimbursement, quality and utilization 
standards under the State Plan. If a State chooses to selectively 
contract for the provider of the benchmark or benchmark equivalent plan 
services, it can do so without any waiver authority, but only to the 
extent that: (1) The selected provider complies with the reimbursement, 
quality, and utilization standards under the State plan; (2) the 
selection process does not discriminate among classes of providers on 
grounds unrelated to their demonstrated effectiveness and efficiency in 
providing the benchmark benefit package; and (3) all providers are paid 
on a timely basis in the same manner as health care practitioners must 
be paid under Sec.  447.45. To the extent that these conditions are 
met, the State does not need to obtain a waiver under the authority of 
section 1915(b)(4) of the Act in order to selectively contract.
    Requirements Not Applicable. In authorizing implementation of 
section 1937 of the Act ``notwithstanding any other provision of this 
title,'' we believe that the Congress intended to permit States to 
bypass the comparability, statewideness, freedom of choice, the 
assurance of transportation to medically necessary services and other 
requirements of title XIX of the Act in order for States to tailor 
benefit packages appropriate to specified groups of Medicaid 
recipients.
    We believe that the Congress intended for States to have a great 
amount of flexibility in crafting programs for those populations which 
may be mandated into a benchmark or benchmark-equivalent plan. We also 
believe that the Congress intended for those individuals to have health 
coverage which mirrored that of the coverage millions of Americans 
receive through employer sponsored plans in the private health 
insurance market.
    Therefore, we propose in Sec.  440.375, Sec.  440.380, Sec.  
440.385, and Sec.  440.390 to provide States this flexibility by 
allowing them to amend their State plans to provide benchmark or 
benchmark-equivalent coverage without regard to comparability, 
statewideness, freedom of choice, the assurance of transportation to 
medically necessary services, and/or other requirements in order to 
tailor and provide benefits.
    Changes to Regulations Text. We propose to add a new subpart C 
beginning with Sec.  440.300.

Subpart C--Benchmark Packages: General Provisions

Sections 440.300, 440.305, and 440.310 Basis, Scope, and Applicability
    At proposed Sec.  440.300 (Basis), Sec.  440.305 (Scope), and Sec.  
440.310 (Applicability), the regulations would reflect the new 
statutory authority for States to provide medical assistance to 
recipients, within one or more groups of Medicaid eligible recipients 
specified by the State, through enrollment in benchmark coverage or 
benchmark-equivalent coverage. A State may only require that 
individuals obtain benefits by enrolling in that coverage if they are a 
``full benefit eligible'' whose eligibility is based on an eligibility 
category under section 1905(a) of the Act that would have been covered 
under the State's plan on or before February 8, 2006, and are not 
within exempted categories under the statute. The proposed regulatory 
definition of full benefit eligible individuals would include 
individuals who would otherwise be eligible to receive the standard 
full Medicaid benefit package under the approved Medicaid State plan, 
but would not include individuals within the statutory exceptions for 
individuals, who are determined eligible by the State for medical 
assistance under section 1902(a)(10)(C) of the Act, or by reason of 
section 1902(f) of the Act, or otherwise eligible based on a reduction 
of income based on costs incurred for medical or other remedial care 
(other medically needy and spend-down populations).
Section 440.315 Exempt Individuals
    Proposed Sec.  440.315 would reflect statutory limitations on 
mandatory enrollment of specified categories of individuals. A State 
may not require enrollment in a benchmark or benchmark-equivalent 
benefit plan by the following individuals:
     The recipient who is a pregnant woman who is required to 
be covered

[[Page 9719]]

under the State plan under section 1902(a)(10)(A)(i) of the Act.
     The recipient who qualifies for medical assistance under 
the State plan on the basis of being blind or disabled (or being 
treated as being blind or disabled) without regard to whether the 
individual is eligible for SSI benefits under title XVI on the basis of 
being blind or disabled and including an individual who is eligible for 
medical assistance on the basis of section 1902(e)(3) of the Act.
     The recipient who is entitled to benefits under any part 
of Medicare.
     The recipient who is terminally ill and is receiving 
benefits for hospice care under title XIX.
     The recipient who is an inpatient in a hospital, nursing 
facility, intermediate care facility for the mentally retarded, or 
other medical institution, and is required, as a condition of receiving 
services in such institution under the State plan, to spend for costs 
of medical care all but a minimal amount of the individual's income 
required for personal needs.
     The recipient who is medically frail or otherwise an 
individual with special medical needs (as described by the Secretary in 
section 440.315(f)). For purposes of this section, we would propose 
that individuals with special needs includes those groups defined by 
Federal regulations at Sec.  438.50(d)(1) and Sec.  438.50(d)(3) of the 
managed care regulations (that is, dual eligibles and certain children 
under age 19 who are eligible for SSI; eligible under section 
1902(e)(3) of the Act, TEFRA children; in foster care or other out of 
home placement; or receiving foster care or adoption assistance). We 
are not proposing a definition for medically frail populations but we 
invite public comments to assist us in defining this term in the final 
regulation.
     The recipient who qualifies based on medical condition for 
medical assistance for long-term care services described in section 
1917(c)(1)(C) of the Act.
     The recipient who receives aid or assistance under part B 
of title IV for children in foster care or an individual with respect 
to whom adoption or foster care assistance is made available under part 
E of title IV, without regard to age.
     The recipient who qualifies for medical assistance on the 
basis of eligibility to receive assistance under a State plan funded 
under part A of title IV (as in effect on or after welfare reform 
effective date defined in section 1931(i) of the Act). This provision 
relates to those individuals who qualify for Medicaid solely on the 
basis of qualification under the Temporary Assistance for Needy 
Families (TANF) rules (that is, the State links Medicaid eligibility to 
TANF eligibility).
     The recipient is a woman who is receiving medical 
assistance by virtue of the application of sections 
1902(a)(10)(ii)(XVIII) and 1902(a) of the Act. This provision relates 
to those individuals who are eligible for Medicaid based on the breast 
or cervical cancer eligibility provisions.
     The recipient qualifies for medical assistance as a TB-
infected individual on the basis of section 1902(a)(10)(A)(ii)(XII) of 
the Act.
     The recipient is not a qualified alien (as defined in 
section 431 of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996) and receives only care and services 
necessary for the treatment of an emergency medical condition in 
accordance with section 1903(v) of the Act.
Section 440.320 State Plan Requirements: Optional Enrollment for Exempt 
Individuals
    At proposed Sec.  440.320, we would allow States to offer exempt 
individuals specified in Sec.  440.315 the option to enroll into a 
benchmark or benchmark-equivalent benefit plan. The State plan must 
identify in its State plan the exempt groups for which this coverage is 
available. There may be instances in which an exempted individual may 
benefit from enrolling in a benchmark or benchmark-equivalent benefit 
package. States are permitted to elect in the State plan to offer 
exempted individuals a benchmark or benchmark-equivalent package, but 
States may not require them to enroll in one. For example, in some 
States the State employee benchmark coverage may be more generous than 
the State Medicaid plan. Secretary-approved coverage may offer the 
opportunity for disabled individuals to obtain integrated coverage for 
acute care and community-based long-term care services. Additionally, 
States may be able to better integrate disease management programs to 
provide better coordinated care which targets the specific needs of 
individuals with special health needs.
Section 440.325 State Plan Requirements: Coverage and Benefits
    At proposed Sec.  440.325, we set forth the conditions under which 
a State may offer enrollment to exempt recipients specified in Sec.  
440.315. When a State offers exempt recipients the option to enroll in 
a benchmark or benchmark-equivalent benefit package, the State must 
inform the recipients that enrollment is voluntary and that the 
individual may opt out of the benchmark or benchmark-equivalent benefit 
package at any time and regain immediate eligibility for the standard 
full Medicaid program under the State plan. The State must inform the 
recipient of the benefits available under the benchmark or benchmark-
equivalent benefit package and provide a comparison of how they differ 
from the benefits available under the standard full Medicaid program. 
The State must document in the individual's eligibility file that the 
individual was informed in accordance with this paragraph and 
voluntarily chose to enroll in the benchmark or benchmark-equivalent 
benefit package.
    At proposed Sec.  440.325, a State would have the option to choose 
to specify the benchmark or benchmark-equivalent coverage packages 
offered under the State's Medicaid plan. A State may select one or all 
of the benchmark plans described in Sec.  440.330 or establish 
benchmark-equivalent plans described in Sec.  440.335, respectively.
Section 440.330 Benchmark Health Benefits Coverage
    At proposed Sec.  440.330, benchmark coverage is described as any 
one of the following:
     Federal Employees Health Benefit Plan Equivalent Coverage 
(FEHBP--Equivalent Health Insurance Coverage). A benefit plan 
equivalent to the standard Blue Cross/Blue Shield preferred provider 
option service benefit plan that is described in and offered to Federal 
employees under 5 U.S.C. 8903(1).
     State employee coverage. A health benefits plan that is 
offered and generally available to State employees in the State 
involved.
     Health Maintenance Organization (HMO) plan. A health 
insurance plan that is offered through an HMO (as defined in section 
2791(b)(3) of the Public Health Service Act) that has the largest 
insured commercial, non-Medicaid enrollment in the State.
     Secretary approved coverage. Any other health benefits 
coverage that the Secretary determines, upon application by a State, 
provides appropriate coverage for the population proposed to be 
provided that coverage. States wishing to opt for Secretarial approved 
coverage should submit a full description of the proposed coverage and 
include a benefit-by-benefit comparison of the proposed plan to one or 
more of the three benchmark plans specified above or to the State's 
standard full Medicaid coverage package under section 1905(a) of the 
Act, as well as a full description of the

[[Page 9720]]

population that would be receiving the coverage. In addition, the State 
should submit any other information that would be relevant to a 
determination that the proposed health benefits coverage would be 
appropriate for the proposed population. The scope of a Secretary-
approved health benefits package will be limited to benefits within the 
scope of the categories available under a benchmark coverage package or 
the standard full Medicaid coverage package under section 1905(a) of 
the Act.
    A State may select one or more benchmark coverage plan options. The 
State may also specify the benchmark plan for any specific recipient. 
For example, one recipient may be enrolled in the FEHBP and another may 
be enrolled into State Employee Coverage at the option of the State.
Section 440.335 Benchmark-Equivalent Health Benefits Coverage
    At proposed Sec.  440.335, we would provide that if a State designs 
or selects a benchmark plan other than those specified in Sec.  
440.330, the State must provide coverage that is equivalent to 
benchmark coverage. Coverage that meets the following requirements will 
be considered to be benchmark-equivalent coverage:
     Required Coverage. Benchmark-equivalent coverage includes 
benefits for items and services within each of the following categories 
of basic services and must include coverage for the following 
categories of basic services:
    + Inpatient and outpatient hospital services.
    + Physicians' surgical and medical services.
    + Laboratory and x-ray services.
    + ``Well-baby'' and ``well-child'' care, including age-appropriate 
immunizations.
    + Other appropriate preventive services, as designated by the 
Secretary.
     Aggregate actuarial value equivalent to benchmark 
coverage. Benchmark-equivalent coverage must have an aggregate 
actuarial value, determined in accordance with proposed Sec.  440.340 
that is at least equivalent to coverage under one of the benchmark 
packages outlined in Sec.  440.330.
     Additional coverage. In addition to the categories of 
services set forth above, benchmark-equivalent coverage may include 
coverage for any additional services included in the benchmark plan or 
described in section 1905(a) of the Act.
     Application of actuarial value for benchmark-equivalent 
coverage that includes prescription drugs, mental health, vision, and 
hearing services. Where the benchmark coverage package used by the 
State as a basis for comparison in establishing the aggregate actuarial 
value of the benchmark-equivalent package includes any or all of the 
following four categories of services: prescription drugs; mental 
health services; vision services; and hearing services; then the 
actuarial value of the coverage for each of these categories of service 
in the benchmark-equivalent coverage package must be at least 75 
percent of the actuarial value of the coverage for that category of 
service in the benchmark plan used for comparison by the State.
    If the benchmark coverage package does not cover one of the four 
categories of services mentioned above, then the benchmark-equivalent 
coverage package may, but is not required to, include coverage for that 
category of service.
Section 440.340 Actuarial Report for Benchmark-Equivalent Health 
Benefit Coverage
    In accordance with 1937(a)(3) of the Act, at proposed Sec.  
440.340, we would require a State as a condition of approval of 
benchmark-equivalent coverage, to provide an actuarial report, with an 
actuarial opinion that the benchmark-equivalent coverage meets the 
actuarial requirements of Sec.  440.335.
    At proposed Sec.  440.340, we would require the actuarial report to 
obtain approval for benchmark-equivalent health benefit coverage and to 
meet all the provisions of the statute. The actuarial report must 
state:
     The actuary issuing the opinion is a member of the 
American Academy of Actuaries (AAA) (and meets Academy standards for 
issuing an opinion).
     The actuary used generally accepted actuarial principles 
and methodologies of the AAA, standard utilization and price factors 
and a standardized population representative of the population 
involved.
     The same principles and factors were used in analyzing the 
value of different coverage (or categories of services) without taking 
into account differences in coverage based on the method of delivery or 
means of cost control or utilization used.
     The report should also state if the analysis took into 
account the State's ability to reduce benefits because of the increase 
in actuarial value of health benefits coverage offered under the State 
plan that results from the limitations on cost sharing (with the 
exception of premiums) under that coverage.
     The actuary preparing the opinion must select and specify 
the standardized set of utilization and pricing factors as well as the 
standardized population.
     The actuary preparing the opinion must provide sufficient 
detail to explain the basis of the methodologies used to estimate the 
actuarial value or, if requested by CMS, to replicate the State's 
result.
Section 440.345 EPSDT Services Requirement
    At proposed Sec.  440.345, we would require States to make 
available EPSDT services as defined in section 1905(r) of the Act that 
are medically necessary for those individuals under age 19 who are 
covered under the State plan. We expect that most benchmark or 
benchmark equivalent plans will offer the majority of EPSDT services. 
To the extent that any medically necessary EPSDT services are not 
covered through the benchmark or benchmark-equivalent plan, States are 
required to supplement the benchmark or benchmark-equivalent plan in 
order to ensure access to these services. Individuals mandated into a 
benchmark or benchmark-equivalent plan and entitled to have access to 
EPSDT services cannot opt out of the benchmark or benchmark equivalent 
plan just to receive these services. While individuals are required to 
have access to such medically necessary services first under the 
benchmark or benchmark-equivalent plan, the State may provide wrap-
around or additional coverage for medically necessary services not 
covered under such plan. Any wrap-around benefits must be sufficient so 
that, in combination with the benchmark or benchmark-equivalent 
benefits package, an individual would have coverage for his or her 
medically necessary services consistent with the requirements under 
1905(r) of the Act. The State plan must include a description of how 
wrap-around benefits or additional services will be provided to ensure 
that these recipients have access to full EPSDT services under 1905(r) 
of the Act.
    In addition, individuals must first seek coverage of EPSDT services 
through the benchmark or benchmark equivalent plan before seeking 
coverage of such through wrap-around benefits.
Section 440.350 Employer Sponsored Insurance Health Plans
    At proposed Sec.  440.350, the use of benchmark or benchmark-
equivalent benefit coverage would be at the discretion of the State and 
may be used in conjunction with employer sponsored health plans as a 
coverage option for individuals with access to private health 
insurance. Additionally, the use of benchmark or benchmark-equivalent 
coverage may be used for individuals with access to private health

[[Page 9721]]

insurance coverage. For example, if an individual has access to 
employer sponsored coverage and that coverage is determined by the 
State to be benchmark or benchmark-equivalent, a State may, at its 
option, provide premium payments on behalf of the recipient to purchase 
the employer coverage. Additionally, a State could create a benchmark 
or benchmark-equivalent plan combining employer sponsored insurance and 
wrap-around benefits to that employer sponsored insurance benefit 
package. The premium payments would be considered medical assistance 
and the State could require the recipient to enroll in the group health 
plan.
Section 440.355 Payment of Premiums
    At proposed Sec.  440.355, payment of premiums by the State, net of 
beneficiary contributions, to obtain benchmark or benchmark-equivalent 
benefit coverage on behalf of beneficiaries under this section will be 
treated as medical assistance under 1905(a) of the Act.
Section 440.360 State Plan Requirement for Providing Additional Wrap-
Around Services
    At proposed Sec.  440.360, a State may at its option provide 
additional wrap-around services to the benchmark or benchmark-
equivalent plans. The wrap-around services do not need to include all 
State plan services. However, the State plan must describe the 
populations covered and the payment methodology for assuring those 
services. Such additional or wrap-around services must be within the 
scope of categories of services covered under the benchmark plan, or 
described in section 1905(a) of the Act.
Section 440.365 Coverage of Rural Health Clinic and Federally Qualified 
Health Center (FQHC) Services
    At proposed Sec.  440.365, a State that provides benchmark or 
benchmark-equivalent coverage to individuals must assure that the 
individual has access, through that coverage or otherwise, to rural 
health clinic services and FQHC services as defined in subparagraphs 
(B) and (C) of section 1905(a)(2) of the Act. Payment for these 
services must be made in accordance with the payment provisions of 
section 1902(bb) of the Act.
Section 440.370 Cost Effectiveness
    At proposed Sec.  440.370, benchmark or benchmark-equivalent 
coverage and any additional benefits must be provided in accordance 
with Federal upper payment limits, procurement requirements and other 
economy and efficiency principles that would otherwise be applicable to 
the services or delivery system through which the coverage and benefits 
are obtained.
Section 440.375 Comparability
    At proposed Sec.  440.375, a State may at its option amend its 
State plan to provide benchmark or benchmark-equivalent coverage to 
recipients without regard to comparability.
Section 440.380 Statewideness
    At proposed Sec.  440.380, a State may at its option amend its 
State plan to provide benchmark or benchmark-equivalent coverage to 
recipients without regard to statewideness.
Section 440.385 Freedom of Choice
    At proposed Sec.  440.385, a State may at its option amend its 
State plan to provide benchmark or benchmark-equivalent coverage to 
recipients without regard to freedom of choice. States may restrict 
recipients to obtaining services from (or through) selectively procured 
provider plans or practitioners that meet, accept, and comply with 
reimbursement, quality and utilization standards under the State Plan, 
to the extent that the restrictions imposed meet the following 
requirements:
    (+) Do not discriminate among classes of providers on grounds 
unrelated to their demonstrated effectiveness and efficiency in 
providing the benchmark benefit package.
    (+) Do not apply in emergency circumstances.
    (+) Require that all provider plans are paid on a timely basis in 
the same manner as health care practitioners must be paid under Sec.  
447.45 of the chapter.
Section 440.390 Assurance of Transportation
    At proposed Sec.  440.390, a State may at its option amend its 
State plan to provide benchmark or benchmark-equivalent coverage to 
recipients without regard to the assurance of transportation to 
medically necessary services requirement specified in section 42 CFR 
431.53.

III. Collection of Information Requirements

    While the following requirements are subject to the PRA, they are 
currently approved under OMB 0938-0993 with an expiration date 
of October 31, 2009.
Section 440.320 State Plan Requirements: Optional Enrollment for Exempt 
Individuals
    Section 440.320(a)requires a State to: (1) Inform the individuals 
that the enrollment is voluntary and that the individual may opt out of 
the benchmark or benchmark-equivalent coverage at any time and regain 
immediate access to standard full Medicaid coverage under the State 
plan; (2) Inform the exempt recipient of the benefits available under 
the benchmark or benchmark-equivalent benefit package and provide a 
comparison of how they differ from the benefits available under the 
standard full Medicaid program; and, (3) Document in the exempt 
recipient's eligibility file that the recipient was informed in 
accordance with this section and voluntarily chose to enroll in the 
benchmark or benchmark-equivalent benefit package.
Section 440.330 Benchmark Health Benefits Coverage
    Section 440.330(d) requires States wishing to opt for Secretarial-
approved coverage to submit a full description of the proposed coverage 
and include a benefit-by-benefit comparison of the proposed plan to one 
or more of the three other benchmark plans specified.
Section 440.340 Actuarial Report for Benchmark-Equivalent Coverage
    Section 440.340 requires a State trying to obtain approval for 
benchmark-equivalent health benefits coverage described in 440.335 to 
submit, as part of its State Plan Amendment, an actuarial report. The 
report must provide sufficient detail to explain the basis of the 
methodologies used to estimate the actuarial value or, if requested by 
CMS, to replicate the State's result.
Section 440.345 Requirement to Provide EPSDT Services
    Section 440.345(a)(2) requires a State to include a description in 
their State Plan of how the wrap-around benefits or additional services 
will be provided to ensure that recipients receive full EPSDT services. 
The description must describe the populations covered and the 
procedures for assuring those services.
Section 440.350 Employer-Sponsored Insurance Health Plans
    Section 440.350(b) requires a State to set forth in the State plan 
the criteria it will use to identify individuals who would be required 
to enroll in an available group health plan to receive

[[Page 9722]]

benchmark or benchmark-equivalent coverage.
Section 440.360 State Plan Requirement for Providing Additional Wrap-
Around Services
    This section requires States opting to provide additional services 
to the benchmark-equivalent plans, to describe the populations covered 
and the payment methodology for these services in their State plan.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, 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, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. 
Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) 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 1 year).
    We issued a State Medicaid Director's letter on March 31, 2006 
providing guidance on the new flexibilities available to States as a 
result of the enactment of the Deficit Reduction Act of 2005. This 
proposed rule simply codifies that guidance. States have already begun 
implementing this provision well in advance of this proposed rule. As a 
result, while we anticipate that implementation of this flexibility 
would be economically significant, the significance is based on the 
changes authorized by statute and not based on discretionary policies 
contained in the rule itself. The impact of the rule would be limited 
to ensuring uniform policies for States that implement the flexibility 
afforded under section 1937 of the Social Security Act, as added by the 
Deficit Reduction Act of 2005. The aggregate amount of Federal savings 
is estimated to be $2.3 billion from FY 2006 through FY 2010.
    We have estimated the impact of this rule by analyzing the 
potential Federal savings related to lower per capita spending that may 
be achieved if States choose to enroll beneficiaries in eligible 
populations in plans that are less costly than projected Medicaid 
costs. To do this, we developed estimates based on the following 
assumptions:
     The number of eligible beneficiaries and the Federal 
Medicaid costs of these beneficiaries are based on 2003 Medicaid 
Statistical Information System (MSIS) data;
     Projections of the number of eligible beneficiaries and 
their associated Federal Medicaid costs were made using assumptions 
from the President's Budget 2007, including enrollment growth rates and 
per capita spending growth rates;
     The relative costs of the new plans allowed under this 
rule to current Medicaid spending were estimated based on reviews of 
Medicaid spending data and the plans described in this rule. 
Additionally, we have assumed that not all States would immediately use 
the options made available through this rule; therefore, we assume that 
State use of these plans would continue to increase through 2011. We 
assume that use in 2006 will be about 10% of 2011-level of use; 40% in 
2007; 60% in 2008; 80% in 2009; and 90% in 2010.''
    These estimates assume that there will be a negligible impact on 
State administration costs. As States already have experience in 
dealing with alternative plan designs, including through waivers or 
managed care plans, we have assumed States are equipped to implement 
these plans and will be part of their normal administrative spending.
    These estimates are subject to a substantial amount of uncertainty 
and actual experience may be significantly different. The range of 
possible experience is greater than under most other rules for the 
following two reasons. First, this rule provides the option for States 
to use alternative plans; to the extent that States participate more or 
less than assumed here (both the number of States that participate and 
the extensiveness of States' use of these plans), Federal savings may 
be greater than or less than estimated. Second, this rule also provides 
a wide range of options for States in designing these plans; to the 
extent that States use plans that are relatively more or less costly 
than assumed here, Federal savings may be less than or greater than 
estimated.

              Estimated Annual Federal Savings Discounted at 0%, 3% and 7%--From FY 2006 to FY 2010
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Total  2006-
                     Discount rate                        2006     2007     2008     2009     2010       2010
----------------------------------------------------------------------------------------------------------------
0%....................................................      $70     $280     $460     $660     $810       $2,280
3%....................................................       68      264      421      586      699        2,038
7%....................................................       65      245      375      504      578        1,767
----------------------------------------------------------------------------------------------------------------

    We anticipate that States would phase in alternative benefit 
programs, and changes would not be fully realized until 2010. The 
majority of savings would be achieved through cost avoidance of future 
anticipated costs by providing appropriate benefits based on a 
population's health care needs, appropriate utilization of services, 
and through gains in efficiencies through contracting. States would be 
able to take greater advantage of marketplace dynamics within their 
State. We also anticipate that a number of States will use this 
flexibility to create programs that are more similar to their SCHIP 
programs. Because States are no longer tied to statewideness and 
comparability rules for non-disabled, non-aged, and non-blind 
populations, they would be able to offer individuals and families 
different types of plans consistent with their needs and available 
delivery systems.

[[Page 9723]]



               Estimated Annual State Savings Discounted at 0%, 3% and 7%--From FY 2006 to FY 2010
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                     Total  2006-
                     Discount rate                        2006     2007     2008     2009     2010       2010
----------------------------------------------------------------------------------------------------------------
0%....................................................      $50     $210     $350     $500     $610       $1,720
3%....................................................       49      198      320      444      526        1,537
7%....................................................       47      183      286      381      435        1,332
----------------------------------------------------------------------------------------------------------------

    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 small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $30.5 million in any 1 year. Individuals and States are 
not included in the definition of a small entity. We have determined, 
and the Secretary certifies, that this provision applies to States only 
and would not affect small entities.
    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 Core-Based 
Statistical Area and has fewer than 100 beds. We have determined, and 
the Secretary certifies, that this proposed rule would not have a 
significant impact on the operations of a substantial number of small 
rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4) also requires that agencies assess anticipated costs and 
benefits before issuing any rule that may result in expenditures in any 
1 year by State, local, or tribal governments, in the aggregate, or by 
the private sector, of $100 million, updated annually for inflation. 
That threshold level is currently approximately $127 million. Because 
this rule does not mandate State participation in using these benchmark 
plans, there is no obligation for the State to make any change to their 
Medicaid program. Therefore, there is no mandate for the State.
    We believe this proposed rule would not mandate expenditures in 
that amount.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This proposed rule would not impose direct cost on States 
or local government or preempt State law. The rule would provide States 
the option to implement alternative Medicaid benefits through a 
Medicaid State plan amendment.

B. Anticipated Effects

    Before section 6044 of the DRA became effective on March 31, 2006, 
State Medicaid programs generally were required to offer at minimum the 
same standard benefit package to each recipient, regardless of income, 
eligibility category, or geographic location. Some States offered 
alternative benefit packages to certain recipients under section 1115 
demonstration waivers approved by the Centers for Medicare & Medicaid 
Services. This provision allows for similar program alternatives under 
the State plan without the constraints of a waiver. Moreover, Medicaid 
families would gain continuity in coverage as family members move 
together from Medicaid and the State Children's Health Insurance 
Program (SCHIP) to, eventually, private coverage. Today, because of the 
lack of flexibility in Medicaid, one child may be receiving Medicaid, 
another in SCHIP, and the parent has access to private coverage. With 
benefit flexibility in State Medicaid programs, families could enroll 
under the same plan, with the same providers and one set of 
administrative rules. Administrative simplification can help families 
maintain health insurance coverage and give them experience with 
private insurance coverage that would become important when their 
income rises above Medicaid and SCHIP eligibility levels and to 
mitigate the need for dependence. States with strong employer-based 
coverage may emphasize family coverage premium assistance. States may 
form larger pools by combining Medicaid recipients with their public 
employees.

C. Alternatives Considered

    This rule proposes requirements for States to elect alternative 
Medicaid benefit programs through the adoption of a Medicaid State plan 
amendment. The proposed requirements in this rule were designed to 
maximize State flexibility while assuring that beneficiaries will get 
quality care that meets their needs. Under this rule, we would permit 
States to define the alternative benefit packages only by reference to 
the benchmark or benchmark-equivalent standard (with the exception of 
the EPSDT wrap-around benefits). We would also permit States to combine 
an alternative benefit package with alternative benefit delivery 
methods, such as through managed care, employer-based coverage, or 
selective contracting. An alternative might have been to require the 
State to document any deviation from otherwise applicable State plan 
requirements, much as is required under section 1115 demonstration 
waivers, 1915(b) waivers, 1915(c) waivers, or any combination thereof. 
We have not elected this alternative because it would be cumbersome for 
States, it would not be consistent with the statutory use of benchmark 
and benchmark-equivalent coverage as reference points for permissible 
benefit packages, and it would not improve the clarity of the State 
plan. Another alternative might have been to limit State flexibility 
under this provision to variation in the amount, duration and scope of 
benefits without providing authority for an integrated approach 
combining alternative benefits with alternative benefit delivery 
methods. We have not elected this alternative because an integrated 
approach allows greater State flexibility to tailor both benefits and 
delivery methods to the eligible groups of individuals being served.

D. Accounting Statement

    As required by OMB Circular A-4 (available at ), http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 15 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this proposed rule. This 
table provides our best estimate of the decrease in Medicaid payments 
as a result of the changes presented in this

[[Page 9724]]

proposed rule. All savings are classified as transfers to the Federal 
Government, as well as to States.

           Table.--Accounting Statement: Classification of Estimated Savings, From FY 2006 to FY 2010
                                                 [In $ millions]
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                 Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
                                           Year Dollar           Units Discount Rate              Period Covered
                                          ----------------------------------------------------------------------
Annualized Monetized Transfers...........  ...........           7%           3%           0%  .................
                                          ----------------------------------------------------------------------
                                                  2006      -$430.8      -$445.0      -$456.0          2006-2010
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?.......................  Federal Government to Beneficiaries, Providers
----------------------------------------------------------------------------------------------------------------
                 Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
Year.....................................      2006         2007         2008         2009            2010
                                          ----------------------------------------------------------------------
Annualized Monetized Transfers...........         -$70        -$280        -$460        -$660              -$810
----------------------------------------------------------------------------------------------------------------
From Whom To Whom?.......................  Federal Government to Beneficiaries, Providers
----------------------------------------------------------------------------------------------------------------
                 Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
                                           Year Dollar           Units Discount Rate              Period Covered
                                          ----------------------------------------------------------------------
Annualized Monetized Transfers...........  ...........           7%           3%           0%  .................
                                          ----------------------------------------------------------------------
                                                  2006      -$324.9      -$335.7      -$344.0          2006-2010
----------------------------------------------------------------------------------------------------------------
From Whom to Whom?.......................  State Governments to Beneficiaries, Providers
----------------------------------------------------------------------------------------------------------------
                 Category                                                Transfers
----------------------------------------------------------------------------------------------------------------
Year.....................................      2006         2007         2008         2009            2010
                                          ----------------------------------------------------------------------
Annualized Monetized Transfers...........         -$50        -$210        -$350        -$500              -$610
----------------------------------------------------------------------------------------------------------------
From Whom to Whom?.......................  State Governments to Beneficiaries, Providers
----------------------------------------------------------------------------------------------------------------

    Column 1: Category--Contains the description of the different 
impacts of the rule; it could include monetized, quantitative but not 
monetized, or qualitative but not quantitative or monetized impacts; it 
also may contain unit of measurement (such as, dollars). In this case, 
the only impact is the Federal annualized monetized impact of the rule.
    Column 2: Primary Estimate--Contains the quantitative or 
qualitative impact of the rule for the respective category of impact. 
Monetized amounts are generally shown in real dollar terms. In this 
case, the federalized annualized monetized primary estimate represents 
the equivalent amount that, if paid (saved) each year over the period 
covered, would result in the same net present value of the stream of 
costs (savings) estimated over the period covered.
    Column 3: Year Dollar--Contains the year to which dollars are 
normalized; that is, the first year that dollars are discounted in the 
estimate.
    Column 4: Unit Discount Rate--Contains the discount rate or rates 
used to estimate the annualized monetized impacts. In this case, three 
rates are used: 7 percent; 3 percent; 0 percent.
    Column 5: Period Covered--Contains the years for which the estimate 
was made.
    Rows: The rows contain the estimates associated with each specific 
impact and each discount rate used.
    ``From Whom to Whom?''--In the case of a transfer (as opposed to a 
change in aggregate social welfare as described in the OMB Circular), 
this section describes the parties involved in the transfer of costs. 
In this case, the costs represent a reduction in Federal Government 
spending on behalf of beneficiaries. The table may also contain minimum 
and maximum estimates and sources cited. In this case, there is only a 
primary estimate and there are no additional sources for the estimate.
    Estimated Savings--The following table shows the discounted costs 
(savings) for each discount rate and for each year over the period 
covered. ``Total'' represents the net present value of the impact in 
the year the rule takes effect. These numbers represent the anticipated 
annual reduction in Federal Medicaid spending under this rule.

E. Conclusion

    We project that the use of benchmark plans under this rule will 
save $2.3 billion from 2006-2010. These savings would arise as States 
use the plans described by this rule to manage the costs of their 
Medicaid program by modifying plan benefits for targeted beneficiaries. 
The actual savings will heavily depend on the number of States that 
ultimately implement these plans, the number of beneficiaries States 
cover with these plans, and the specific design and selection of 
benchmark plans.
    For reasons stated above, we are not preparing analyses for either 
the RFA or section 1102(b) of the Act because we have determined that 
this rule would 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.

[[Page 9725]]

List of Subjects in 42 CFR Part 440

    Grant programs--health, Medicaid.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 440--SERVICES: GENERAL PROVISIONS

    1. The authority citation for part 440 continues to read as 
follows:

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

    2. A new subpart C, consisting of Sec.  440.300 through Sec.  
440.390, is added to part 440 to read as follows:
Subpart C--Benchmark Benefit and Benchmark-Equivalent Coverage
Sec.
440.300 Basis.
440.305 Scope.
440.310 Applicability.
440.315 Exempt individuals.
440.320 State plan requirements: Optional enrollment for exempt 
individuals.
440.325 State plan requirements: Coverage and benefits.
440.330 Benchmark health benefits coverage.
440.335 Benchmark-equivalent health benefits coverage.
440.340 Actuarial report for benchmark-equivalent coverage.
440.345 EPSDT services requirement.
440.350 Employer-sponsored insurance health plans.
440.355 Payment of premiums.
440.360 State plan requirement for providing additional wrap-around 
services.
440.365 Coverage of rural health clinic and federally qualified 
health center (FQHC) services.
440.370 Cost-effectiveness.
440.375 Comparability.
440.380 Statewideness.
440.385 Freedom of choice.
440.390 Assurance of Transportation.

Subpart C--Benchmark Benefit and Benchmark-Equivalent Coverage


Sec.  440.300  Basis.

    This subpart implements section 1937 of the Act, which authorizes 
States to provide for medical assistance to one or more groups of 
Medicaid-eligible recipients specified by the State under an approved 
State plan amendment through enrollment in coverage that provides 
benchmark or benchmark-equivalent health care benefit coverage.


Sec.  440.305  Scope.

    (a) General. This subpart sets out requirements for States that 
elect to provide medical assistance to certain Medicaid eligible 
recipients within one or more groups of individuals specified by the 
State, through enrollment of the recipients in coverage, identified as 
``benchmark'' or ``benchmark-equivalent.''
    (b) Limitations. A State may only apply the option in paragraph (a) 
of this section for an individual whose eligibility is based on an 
eligibility category under section 1905(a) of the Act that would have 
been covered under the State's plan on or before February 8, 2006.
    (c) A State may not require but may offer enrollment in benchmark 
or benchmark-equivalent coverage to the Medicaid eligible individuals 
listed in Sec.  440.315. States allowing individuals to opt in must be 
in compliance with the rules specified at Sec.  440.320.


Sec.  440.310  Applicability.

    (a) Enrollment. The State may require ``full benefit eligible'' 
recipients not excluded in Sec.  440.315 to enroll in benchmark or 
benchmark-equivalent coverage.
    (b) Full benefit eligible. A recipient is full benefit eligible if 
determined by the State to be eligible to receive the standard full 
Medicaid benefit package under the approved Medicaid State plan if not 
for the application of the option available under this subpart, but 
does not include individuals determined eligible as medically needy 
individuals, or eligible because of a reduction of income based on 
costs incurred for medical or other remedial care under section 1902(f) 
of the Act or otherwise based on incurred medical costs.


Sec.  440.315  Exempt individuals.

    For recipients within one (or more) of the following categories, 
the State plan may offer, but may not require under Sec.  440.310, the 
opportunity to obtain benefits through enrollment in benchmark or 
benchmark-equivalent coverage:
    (a) The recipient is a pregnant woman who is required to be covered 
under the State plan under section 1902(a)(10)(A)(i) of the Act.
    (b) The recipient qualifies for medical assistance under the State 
plan on the basis of being blind or disabled (or being treated as being 
blind or disabled) without regard to whether the individual is eligible 
for Supplemental Security Income benefits under title XVI on the basis 
of being blind or disabled and including an individual who is eligible 
for medical assistance on the basis of section 1902(e)(3) of the Act.
    (c) The recipient is entitled to benefits under any part of 
Medicare.
    (d) The recipient is terminally ill and is receiving benefits for 
hospice care under title XIX.
    (e) The recipient is an inpatient in a hospital, nursing facility, 
intermediate care facility for the mentally retarded, or other medical 
institution, and is required, as a condition of receiving services in 
that institution under the State plan, to spend for costs of medical 
care all but a minimal amount of the individual's income required for 
personal needs.
    (f) The recipient is medically frail or otherwise an individual 
with special medical needs. For these purposes, individuals with 
special needs are those individuals described in Sec.  438.50(d)(1) and 
Sec.  438.50(d)(3) of this chapter.
    (g) The recipient qualifies based on medical condition for medical 
assistance for long-term care services described in section 
1917(c)(1)(C) of the Act.
    (h) The recipient is an individual with respect to whom aid or 
assistance is made available under part B of title IV to children in 
foster care and individuals with respect to whom adoption or foster 
care assistance is made available under part E of title IV, without 
regard to age.
    (i) The recipient qualifies for medical assistance on the basis of 
eligibility to receive assistance under a State plan funded under part 
A of title IV (as in effect on or after welfare reform effective date 
defined in section 1931(i) of the Act). This provision relates to those 
individuals who qualify for Medicaid solely on the basis of 
qualification under the State's TANF rules.
    (j) The recipient is a woman who is receiving medical assistance by 
virtue of the application of sections 1902(a)(10)(ii)(XVIII) and 
1902(a) of the Act.
    (k) The recipient qualifies for medical assistance on the basis of 
section 1902(a)(10)(A)(ii)(XII) of the Act.
    (l) The recipient is not a qualified alien (as defined in section 
431 of the Personal Responsibility and Work Opportunity Reconciliation 
Act of 1996) and receives care and services necessary for the treatment 
of an emergency medical condition in accordance with section 1903(v) of 
the Act.


Sec.  440.320  State plan requirements: Optional enrollment for exempt 
individuals.

    (a) General rule. A State plan that offers exempt individuals as 
defined in Sec.  440.315 the option to enroll in benchmark or 
benchmark-equivalent

[[Page 9726]]

coverage must identify in its State plan the exempt groups for which 
this coverage is available, and must comply with the following 
provisions:
    (1) In any case in which the State offers an exempt individual the 
option to obtain coverage in a benchmark or benchmark-equivalent 
benefit package, the State must inform the individuals that the 
enrollment is voluntary and that the individual may opt out of the 
benchmark or benchmark-equivalent coverage at any time and regain 
immediate access to standard full Medicaid coverage under the State 
plan.
    (2) The State must inform the exempt recipient of the benefits 
available under the benchmark or benchmark-equivalent benefit package 
and provide a comparison of how they differ from the benefits available 
under the standard full Medicaid program.
    (3) The State must document in the exempt recipient's eligibility 
file that the recipient was informed in accordance with this section 
and voluntarily chose to enroll in the benchmark or benchmark-
equivalent benefit package.
    (b) [Reserved]


Sec.  440.325  State plan requirements: Coverage and benefits.

    Subject to requirements in Sec.  440.345 and Sec.  440.365, States 
may elect to provide any of the following of types of health benefits 
coverage:
    (a) Benchmark coverage in accordance with Sec.  440.330.
    (b) Benchmark-equivalent coverage in accordance with Sec.  440.335.


Sec.  440.330  Benchmark health benefits coverage.

    Benchmark coverage is health benefits coverage that is equal to the 
coverage under one or more of the following benefit plans:
    (a) Federal Employees Health Benefit Plan Equivalent Coverage 
(FEHBP--Equivalent Health Insurance Coverage). A benefit plan 
equivalent to the standard Blue Cross/Blue Shield preferred provider 
option service benefit plan that is described in and offered to Federal 
employees under 5 U.S.C. 8903(1).
    (b) State employee coverage. Health benefits coverage that is 
offered and generally available to State employees in the State.
    (c) Health Maintenance Organization (HMO) plan. A health insurance 
plan that is offered through an HMO, (as defined in section 2791(b)(3) 
of the Public Health Service Act) that has the largest insured 
commercial, non-Medicaid enrollment in the State.
    (d) Secretary approved coverage. Any other health benefits coverage 
that the Secretary determines, upon application by a State, provides 
appropriate coverage for the population proposed to be provided such 
coverage. States wishing to opt for Secretarial approved coverage 
should submit a full description of the proposed coverage, (including a 
benefit-by-benefit comparison of the proposed plan to one or more of 
the three other benchmark plans specified above or to the State's 
standard full Medicaid coverage package under section 1905(a) of the 
Act), and of the population to which the coverage would be offered. In 
addition, the State should submit any other information that would be 
relevant to a determination that the proposed health benefits coverage 
would be appropriate for the proposed population. The scope of a 
Secretary-approved health benefits package will be limited to benefits 
within the scope of the categories available under a benchmark coverage 
package or the standard full Medicaid coverage package under section 
1905(a) of the Act.


Sec.  440.335  Benchmark-equivalent health benefits coverage.

    (a) Aggregate actuarial value. Benchmark-equivalent coverage is 
health benefits coverage that has an aggregate actuarial value, as 
determined in Sec.  440.340 that is at least actuarially equivalent to 
the coverage under one of the benchmark benefit packages described in 
Sec.  440.330 for the identified Medicaid population to which it will 
be offered.
    (b) Required coverage. Benchmark-equivalent health benefits 
coverage must include coverage for the following categories of 
services:
    (1) Inpatient and outpatient hospital services.
    (2) Physicians' surgical and medical services.
    (3) Laboratory and x-ray services.
    (4) Well-baby and well-child care, including age-appropriate 
immunizations.
    (5) Other appropriate preventive services, such as emergency 
services as designated by the Secretary.
    (c) Additional coverage. (1) In addition to the categories of 
services of this section, benchmark-equivalent coverage may include 
coverage for any additional services in a category included in the 
benchmark plan or described in section 1905(a) of the Act.
    (2) If the benchmark coverage package used by the State for 
purposes of comparison in establishing the aggregate actuarial value of 
the benchmark-equivalent package includes any of the following four 
categories of services: Prescription drugs; mental health services; 
vision services; and hearing services; then the actuarial value of the 
coverage for each of these categories of service in the benchmark-
equivalent coverage package must be at least 75 percent of the 
actuarial value of the coverage for that category of service in the 
benchmark plan used for comparison by the State.
    (3) If the benchmark coverage package does not cover one of the 
four categories of services in paragraph (c)(2) of this section, then 
the benchmark-equivalent coverage package may, but is not required to, 
include coverage for that category of service.


Sec.  440.340  Actuarial report for benchmark-equivalent coverage.

    (a) A State plan amendment that would provide for benchmark-
equivalent health benefits coverage described in Sec.  440.335, must 
include an actuarial report. The actuarial report must contain an 
actuarial opinion that the benchmark equivalent health benefits 
coverage meets the actuarial requirements set forth in Sec.  440.335. 
The report must also specify the benchmark coverage used for 
comparison.
    (b) The actuarial report must state that it was prepared according 
to the following requirements:
    (1) By an individual who is a member of the American Academy of 
Actuaries (AAA).
    (2) Using generally accepted actuarial principles and methodologies 
of the AAA.
    (3) Using a standardized set of utilization and price factors.
    (4) Using a standardized population that is representative of the 
population involved.
    (5) Applying the same principles and factors in comparing the value 
of different coverage (or categories of services).
    (6) Without taking into account any differences in coverage based 
on the method of delivery or means of cost control or utilization used.
    (7) Taking into account the ability of the State to reduce benefits 
by taking into account the increase in actuarial value of health 
benefits coverage offered under the State plan that results from the 
limitations on cost sharing (with the exception of premiums) under that 
coverage.
    (c) The actuary preparing the opinion must select and specify the 
standardized set of factors and the standardized population to be used 
in paragraphs (b)(3) and (b)(4) of this section.
    (d) The State must provide sufficient detail to explain the basis 
of the methodologies used to estimate the actuarial value or, if 
requested by CMS, to replicate the State's result.

[[Page 9727]]

Sec.  440.345  EPSDT services requirement.

    (a) The State must assure access to early and periodic screening, 
diagnostic and treatment (EPSDT) services through benchmark or 
benchmark-equivalent plan benefits or as wrap-around benefits to those 
plans for any child under 19 years of age eligible in a category under 
the State plan.
    (1) Sufficiency: Any wrap-around EPSDT benefits must be sufficient 
so that, in combination with the benchmark or benchmark-equivalent 
benefits plan, these individuals have access to the full EPSDT benefit.
    (2) State Plan requirement: The State must include a description of 
how the wrap-around benefits will be provided to ensure that these 
recipients have access to the full EPSDT benefit.
    (b) Individuals must first seek coverage of EPSDT services through 
the benchmark or benchmark equivalent plan before seeking coverage of 
such through wrap-around benefits.


Sec.  440.350  Employer-sponsored insurance health plans.

    (a) A State may provide benchmark or benchmark-equivalent coverage 
by obtaining employer sponsored health plans (either alone or with the 
addition of wrap-around services covered separately under Medicaid) for 
individuals with access to private health insurance.
    (b) The State must assure that employer sponsored plans meet the 
requirements of benchmark or benchmark-equivalent coverage, including 
the cost-effectiveness requirements at Sec.  440.370.
    (c) A State may provide benchmark or benchmark-equivalent coverage 
through a combination of employer sponsored health plans and additional 
benefit coverage provided by the State that wraps around the employer 
sponsored health plan which, in the aggregate, results in benchmark or 
benchmark-equivalent level of coverage for those recipients.


Sec.  440.355  Payment of premiums.

    Payment of premiums by the State, net of beneficiary contributions, 
to obtain benchmark or benchmark-equivalent benefit coverage on behalf 
of beneficiaries under this section will be treated as medical 
assistance under section 1905(a) of the Act.


Sec.  440.360  State plan requirement for providing additional wrap-
around services.

    If the State opts to provide additional or wrap-around coverage to 
individuals enrolled in benchmark or benchmark-equivalent plans, the 
State plan must describe the populations covered and the payment 
methodology for these services. Additional or wrap-around services must 
be in categories that are within the scope of the benchmark coverage, 
or are described in section 1905(a) of the Act.


Sec.  440.365  Coverage of rural health clinic and federally qualified 
health center (FQHC) services.

    If a State provides benchmark or benchmark-equivalent coverage to 
individuals, it must assure that the individual has access, through 
that coverage or otherwise, to rural health clinic services and FQHC 
services as defined in subparagraphs (B) and (C) of section 1905(a)(2) 
of the Act. Payment for these services must be made in accordance with 
the payment provisions of section 1902(bb) of the Act.


Sec.  440.370  Cost-effectiveness.

    Benchmark and benchmark-equivalent coverage and any additional 
benefits must be provided in accordance with Federal upper payment 
limits, procurement requirements and other economy and efficiency 
principles that would otherwise be applicable to the services or 
delivery system through which the coverage and benefits are obtained.


Sec.  440.375  Comparability.

    States have the option to amend their State plan to provide 
benchmark or benchmark-equivalent coverage to recipients without regard 
to comparability.


Sec.  440.380  Statewideness.

    States have the option to amend their State plan to provide 
benchmark or benchmark-equivalent coverage to recipients without regard 
to statewideness.


Sec.  440.385  Freedom of choice.

    (a) States have the option to amend their State plan to provide 
benchmark or benchmark-equivalent coverage to recipients without regard 
to the requirements for free choice of provider in Sec.  431.51 of this 
chapter.
    (b) States may restrict recipients to obtaining services from (or 
through) selectively procured provider plans or practitioners that 
meet, accept, and comply with reimbursement, quality and utilization 
standards under the State Plan, to the extent that the restrictions 
imposed meet the following requirements:
    (1) Do not discriminate among classes of providers on grounds 
unrelated to their demonstrated effectiveness and efficiency in 
providing the benchmark benefit package.
    (2) Do not apply in emergency circumstances.
    (3) Require that all provider plans are paid on a timely basis in 
the same manner as health care practitioners must be paid under Sec.  
447.45 of the chapter.


Sec.  440.390  Assurance of Transportation.

    A State may at its option amend its State plan to provide benchmark 
or benchmark-equivalent coverage to recipients without regard to the 
assurance of transportation to medically necessary services requirement 
specified in Sec.  431.53 of this chapter.
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

    Dated: October 11, 2007.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 1, 2007.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register on February 15, 2008.
[FR Doc. E8-3206 Filed 2-21-08; 8:45 am]
BILLING CODE 4120-01-P