[Federal Register Volume 75, Number 199 (Friday, October 15, 2010)]
[Notices]
[Pages 63480-63482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25977]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES


Medicaid Program: Implementation of Section 614 of the Children's 
Health Insurance Program Reauthorization Act of 2009 for Adjustments to 
the Federal Medical Assistance Percentage for Medicaid Federal Matching 
Funds

AGENCY: Office of the Secretary, Department of Health and Human 
Services.

ACTION: Final notice.

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SUMMARY: For purposes of Title XIX (Medicaid) of the Social Security 
Act, the Federal Medical Assistance Percentage (FMAP), defined in 
section 1905(b) of the Social Security Act, for each State beginning 
with fiscal year 2006 is subject to adjustment pursuant to section 614 
of the Children's Health Insurance Program Reauthorization Act of 2009 
(CHIPRA), Public Law 111-3. Section 614 provides for a recalculation of 
the FMAP disregarding identifiable significantly disproportionate 
employer pension or insurance fund contributions for a State. These 
contributions, when counted, increase State personal income and, by 
operation of the statutory formula to calculate the FMAP, would 
decrease the FMAP for the State. This final notice announces the 
methodology that the U.S. Department of Health and Human Services will 
use to determine the need for, and amount of, any such recalculation of 
the FMAP for a State.

A. Background

    Section 1905(b) of the Social Security Act defines the Federal 
Medical Assistance Percentage (FMAP), which is used to determine the 
share of Federal matching funds paid to each State for medical 
assistance payments under an approved Medicaid State plan under Title 
XIX of the Social Security Act. These FMAP rates are also used to 
determine Federal matching fund rates for State expenditures for 
assistance payments under certain social service programs under Title 
IV of the Social Security Act and for child health assistance 
expenditures under the Children's Health Insurance Program under title 
XXI of the Social Security Act. In other Federal Register issuances, we 
have addressed changes to these FMAP rates required under the American 
Recovery and Reinvestment Act of 2009 (Pub. L. 111-5).
    This notice addresses adjustments to the FMAP rates that are 
applicable only to the Medicaid program and required by Section 614 of 
the Children's Health Insurance Program Reauthorization Act of 2009 
(CHIPRA). Section 614 specifies that certain significantly 
disproportionate employer pension or insurance fund contributions shall 
be disregarded when computing the per capita income used to calculate 
the FMAP. The statutory formula for calculating the FMAP is based on 
the ratio of the State's per capita income to the per capita income of 
the entire United States. Under this formula, States with higher per 
capita income levels could have lower FMAP rates than States with lower 
per capita income levels. Significantly disproportionate employer 
pension or insurance fund contributions increase State personal income 
and, by operation of the statutory formula, could result in lower FMAPs 
than if those contributions were disregarded. CHIPRA requires 
adjustments to the Fiscal Year 2006 (FY06) through Fiscal Year 2010 
(FY10) Medicaid FMAP rates and to any future FMAP calculation.
    A notice with comment on the proposed implementation of Section 614 
was published in the Federal Register on June 7, 2010. Only one person 
sent in comments during the 30-day period.

B. Calculation of the FMAP Adjustment Under CHIPRA

    Section 614 of CHIPRA requires that the Title XIX Medicaid FMAP 
shall be adjusted for any States that had significantly 
disproportionate employer pension and insurance fund contributions. A 
significantly disproportionate employer contribution is defined as any 
identifiable employer contribution towards pension or other employee 
insurance funds that is estimated to accrue to residents of such

[[Page 63481]]

State for a calendar year if the increase exceeds 25 percent of the 
total increase in State personal income. The personal income data set 
originally used in calculating FMAP rates shall be used for making this 
adjustment to the FMAP rates.
    The required adjustment is a recalculation of the FMAP rate 
disregarding any significantly disproportionate employer pension or 
insurance fund contribution in computing the State per capita income, 
but not disregarding such contributions in computing the United States 
per capita income used in the FMAP calculation. Section 614(c) provides 
that in no case shall a State have its FMAP reduced because of the 
application of this disregard.
    Section 614(b)(3) specifies a special adjustment for negative 
growth in State personal income. In that instance, for the purposes of 
calculating the FMAP for a calendar year, an employer pension and 
insurance fund contribution shall be disregarded to the extent that it 
exceeds 125 percent of the amount of employer contribution in the 
previous calendar year. The methodology to implement this provision 
will be addressed in a future Federal Register notice.

C. Analysis of and Responses to Comments

    In response to the June 2010 proposed regulation, we received 
correspondence from one commenter. The commenter posed several 
questions and suggestions.

Application of FMAP Adjustment

    Comment: The commenter asked if HHS anticipates the adjustment 
applying to only one particular State or is there a reasonable 
expectation that other States may qualify? In addition, the commenter 
asked whether HHS will provide guidance to States in the form of 
thresholds above which a State may determine that a review of employer 
contributions is warranted for a potential FMAP adjustment.
    Response: Except for Louisiana with a negative growth in personal 
income in 2005, all other States had increases in State personal income 
of between $359 million and $1.4 billion or more during the 2003-2008 
time period. A contribution attributed to a particular State's personal 
income of at least 25 percent of these amounts would be necessary to 
trigger an FMAP adjustment. At this time, HHS knows of only one 
disproportionate employer contribution, attributed to Michigan in 2003. 
HHS does not think it is likely that another employer contribution in 
2003-2008 would be considered disproportionate, but does not rule out 
the possibility. It is possible, however, that additional States may 
qualify at any point in the future. HHS does not intend to issue 
guidance with each FMAP notice on a State's potential threshold where a 
review of its employer contributions may be warranted. States can 
determine for themselves using Department of Commerce Bureau of 
Economic Analysis (BEA) data, whether an employer's contribution would 
meet the threshold for triggering an FMAP adjustment.

Definition of Employer Pension and Insurance Fund Contribution

    Comment: The commenter asked whether the definition of ``employer 
pension and insurance fund contribution'' is the same as the BEA 
definition.
    Response: HHS intends to use the BEA definition: contributions 
consisting of employer payments (including payments-in-kind) to private 
pension and profit-sharing plans, publicly administered government 
employee retirement plans, private group health and life insurance 
plans, privately administered workers' compensation plans, and 
supplemental unemployment benefit plans, formerly called ``other labor 
income''.

Accounting for Employer's Contributions

    Comment: The commenter asked if it is the intent of the methodology 
to identify single employers with disproportionate pension and 
insurance fund contributions. The commenter also asked whether 
contributions from any employer (public, private for-profit, private 
non-profit, self-employed, S Corporations, C corporations, LLCs, etc) 
are eligible.
    Response: The legislation states that a significantly 
disproportionate employer pension and insurance fund contribution is 
any identifiable employer contribution meeting the threshold. HHS reads 
this language to refer to the contribution of a single employer. The 
legislation does not exclude any employer.

Adjustment for Negative Growth in State Income

    Comment: The commenter asked whether the cumulative amount of 
contributions in excess of 125 percent from all such qualifying 
employers would be disregarded for the special adjustment for negative 
growth in State personal income.
    Response: This comment concerns the special adjustment for negative 
growth in State personal income, which is not covered in this notice. 
HHS intends to issue another notice on the special adjustment for 
negative growth in State personal income.

Acceptable Evidence Submission

    Comment: The commenter suggested that it would be beneficial for 
HHS to describe in more detail what evidence of disproportionate 
employer pension and insurance fund contribution is acceptable and 
asked what methodology will be used to determine the amounts of 
employer contributions estimated to accrue to residents of a State.
    Response: In order to give States as much flexibility as possible 
in the type of information that can be submitted to request an 
adjustment, HHS does not want to prescribe the specific type or format 
of their submission, but the information should be documented in such a 
way to permit effective review and verification. HHS will be using the 
same methodology employed by BEA which is based on a distribution of 
industry wages to allocate employer contributions to States.

Time Period for Adjustment and Data Submission

    Comment: The commenter asked whether it is correct that there is no 
end date to this provision. The commenter believed that the time frame 
for submitting data for employer contributions made between 2003 and 
2008 by the end of FY 2010 is unreasonable and that States should be 
given up to 4 years to supply information for future years. The 
commenter also asked how long the verification process will take in 
considering a request to adjust a State's FMAP and indicates that 
States would appreciate a response within their fiscal year.
    Response: The commenter correctly noted that the legislation does 
not indicate an end date to this provision. HHS finds the commenter's 
suggestion for a longer time frame for submitting initial data for the 
years 2003 through 2008 reasonable. HHS therefore extends the time 
frame for submitting data for employer contributions made between 2003 
and 2008 to the end of FY 2011. Similarly, HHS agrees to extend the 
time frame for submitting data from 2009 and beyond such that the 
deadline for submission of data from 2009 and beyond will be the end of 
the second fiscal year following the year end of the employer's annual 
financial statement that includes the disproportionate employer 
contribution.
    Because it is not known what information a State may submit as

[[Page 63482]]

justification for an FMAP adjustment, we cannot predetermine how much 
time will be required to verify the information, but will review and 
verify a State's submission and request for an adjustment to its FMAP 
as expeditiously as possible.

D. Methodology Utilized in the Calculation of the Adjustment to the 
Medicaid FMAP

    This Final Notice announces the methodology that the U.S. 
Department of Health and Human Services (HHS) will use in implementing 
the employer contribution disregard required by Section 614 of CHIPRA. 
The approach reflects the absence of a Federal source of reliable and 
timely data on pension and insurance contributions by individual 
employer and State.
    We will use the BEA definition of pension and insurance 
contributions: contributions consisting of employer payments (including 
payments-in-kind) to private pension and profit-sharing plans, publicly 
administered government employee retirement plans, private group health 
and life insurance plans, privately administered workers' compensation 
plans, and supplemental unemployment benefit plans, formerly called 
``other labor income''.
    We will identify significantly disproportionate employer pension or 
insurance contributions for a State by reviewing contributions 
identified by the State. We believe that States may have greater access 
to timely and relevant data on such contributions than is available 
from Federal data sources. We would request that any State that 
believes an individual employer has made a significantly 
disproportionate employer or insurance contribution provide data on 
that individual employer contribution to HHS. The State may submit 
official audited financial statements for the employer for the year of 
the contribution (starting with the year 2003) and the prior year. If 
the State does not submit official audited financial statements for the 
employer, the State may submit other evidence that the increase in the 
employer's contribution is likely to exceed 25 percent of the increase 
in the State's personal income in that year.
    After a State submits written notification that such a contribution 
occurred, HHS will verify the State's data. As part of this 
verification process, HHS will search the Security Exchange Commission 
(SEC) filings or the Internal Revenue Service (IRS) 5500 Annual Return/
Report of Employee Benefit Plan database to find the employer's 
contributions for the relevant two-year period. If HHS is unable to 
verify the State's submitted data, no FMAP adjustment will be made.
    After the State's data for an employer is verified, HHS will 
allocate employer contributions in both years to the State according to 
the methodology used by the BEA. Under that methodology, employer 
contributions to pension and insurance funds are distributed according 
to State wages and salaries by the employer's industry subsector. Then, 
HHS will determine whether the State increase in the employer 
contribution exceeds the trigger of 25 percent of the increase in total 
State personal income.
    If the employer contribution is significantly disproportionate, HHS 
will disregard the State-allocated contribution, i.e., subtract it from 
the State's personal income in that year. HHS will calculate the FMAP 
adjustment for the State using the revised State per capita income 
based on the newly calculated State personal income. Since the FMAP 
calculation involves the average per capita income for three years, the 
FMAP adjustment will be calculated for each fiscal year affected by the 
State's revised per capita income. For instance, a significantly 
disproportionate employer contribution in 2003 would affect the FMAPs 
for FY06 (based on State per capita income for calendar years 2001, 
2002, and 2003), FY07 (based on State per capita income for calendar 
years 2002, 2003, and 2004), and FY08 (based on State per capita income 
for calendar years 2003, 2004, and 2005).
    States may submit data on disproportionate employer contributions 
made between 2003 and 2008 to HHS by the end of FY 2011. The deadline 
for 2009 and beyond will be the end of the second fiscal year following 
the year end of the employer's annual financial statement that includes 
the disproportionate employer contribution.
    To summarize this methodology, after receipt of a State submission, 
HHS will verify the employer contributions from SEC filings or IRS 5500 
reports for the year of the contribution and the prior year. If the 
employer contributions are verified, HHS will allocate the employer 
contributions for the State for both years and determine whether the 
State increase in the employer contribution exceeds the trigger of 25 
percent of the increase in the State's personal income. If the employer 
contribution meets the definition of significantly disproportionate by 
exceeding the trigger, HHS will recalculate the FMAP rates for the 
corresponding fiscal years. The Centers for Medicare & Medicaid 
Services (CMS) will then calculate the changes in Federal medical 
assistance payments resulting from the adjusted FMAP rates for the 
State's applicable fiscal years. If HHS is unable to verify the State's 
submitted data, then no FMAP adjustment will be made.

DATES: Effective Dates: This final notice is effective 30 days after 
publication and sets forth a methodology for adjusted percentages 
applicable under title XIX of the Social Security Act for fiscal years 
2006 and beyond, beginning October 1, 2005.

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

    Dated: September 10, 2010 .
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-25977 Filed 10-14-10; 8:45 am]
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