August 10, 2011 
 
 
Dear State Exchange Grantees, Medicaid and CHIP Directors, and Health and Human Services 
Directors: 
 
As part of the Administrations commitment to promote flexibility for States and to ensure 
effective and efficient use of State and Federal resources, we are providing a time-limited, 
specific exception to the cost allocation requirements set forth in OMB Circular A-87 (Section 
C.3) to allow, at the option of the State, Federally funded human services programs to benefit 
from investments in State eligibility systems being made by State-operated Exchanges, Medicaid 
and the Childrens Health Insurance Program (CHIP).  This exception, discussed below, allows 
States the opportunity to thoughtfully consider the benefits of integrating the eligibility 
determination functions across health and human services programs and the timing of any such 
integration.   
 
Integrated systems can realize efficiencies for States and better customer service for families.  At 
the same time, States have a short timeframe to accomplish the eligibility system changes needed 
to implement Affordable Care Act health insurance changes that take effect in 2014.  We 
encourage States to consider the benefits of interoperable systems, and how system development 
might be staged to ensure that the Affordable Care Act timeframes are met.  Ultimately, 
decisions about whether to integrate the eligibility functions across programs and the schedule 
for such integration is a State decision. We are committed to providing coordinated Federal 
support and technical assistance throughout the process.  
 
Background 
 
As you know, the Affordable Care Act is projected to expand health insurance coverage to tens 
of millions of individuals starting January 1, 2014, through new Affordable Insurance Exchanges 
(Exchanges) and expansions in Medicaid.  In addition, the Affordable Care Act substantially 
changes the way Medicaid programs cover individuals, creating a new national income standard 
and methodology which will work in coordination with CHIP, and premium tax credits and 
reduced cost-sharing through the Exchanges. 
 
To accommodate these demands, many States are making long-needed investments in eligibility 
systems, to provide a high-quality customer experience to all individuals seeking health 
coverage, to accurately and quickly make a decision about a persons eligibility, and to get the 
individual enrolled into coverage.   
      Page 2 
 
We have provided previous guidance to States about how these systems should be developed and 
deployed to meet the goals of the Affordable Care Act, which calls for coordinated eligibility 
determination mechanisms.  In accordance with this previous guidance, State eligibility systems, 
in order for the improvements to be eligible for Federal assistance, must be able to determine 
eligibility for Medicaid, CHIP, and premium tax credits and cost sharing benefits through the 
Exchange in a streamlined and integrated fashion. Medicaid, CHIP, and the Exchange will each 
contribute funding to a shared eligibility service or system that will apply a coordinated set of 
eligibility rules and use a common verification system to determine placement in one of the 
coverage programs available.  As a reminder, this Federal guidance can be found in the 
Guidance for Exchange and Medicaid Information Technology (IT) Systems, Version 2.0 
(located at http://www.cms.gov/Medicaid-Information-Technology-
MIT/Downloads/exchangemedicaiditguidance.pdf and http://www.cms.gov/Medicaid-
Information-Technology-MIT/). 
 
Exceptions to Certain Cost Allocation Requirements 
 
Because other Federally funded human services programs can benefit from the changes being 
made to create a modern infrastructure to determine eligibility for Exchanges, tax credits, 
Medicaid and CHIP, we sought and received an exception to OMB Circular A-87 to allow States 
to reuse these assets for other programs and purposes without having to allocate those 
development costs to these other programs. 
 
The exception allows human services programs (including, but not limited to, Temporary 
Assistance for Needy Families (TANF), Child Care and Development Fund (CCDF), and the 
Supplemental Nutrition Assistance Program (SNAP)) to utilize systems designed specifically for 
determining a persons eligibility for certain health coverage programs (Medicaid, CHIP, and 
premium tax credits and cost sharing benefits through the Exchange) without sharing in the 
common system development costs, so long as those costs would have been incurred anyway to 
develop systems for the Exchanges, Medicaid, and CHIP.  Incremental costs for additional 
requirements needed for the inclusion of those programs, whether they are added to those 
projects at initial or later stages, must be charged entirely to the benefitting program.    
 
This exception is effective immediately, applies only to development costs for eligibility 
determination systems, and terminates on December 31, 2015.  Maintenance and operational 
costs for these systems shall continue to be cost allocated as currently required under OMB 
Circular A-87.  Additional guidance and technical assistance related to the exception will be 
provided in the upcoming months.   
 
CMS will track and compare development across States benchmarking costs and system 
capacity, to ensure that States are accurately capturing which costs and components are 
attributable to the underlying system for the Exchanges, Medicaid, and CHIP, and which are 
attributable to the addition of human services programs.  We will provide more guidance at a 
later time. 
 
As you know, the Affordable Care Acts coverage expansions are effective January 1, 2014, and 
the systems that support eligibility determinations need to be operational and fully tested no later      Page 3 
 
than the summer of 2013.  Toward that end, any system requirement that would delay meeting 
that deadline will not be permitted.  Because of these tight timeframes, we encourage States 
pursuing an integrated eligibility system strategy consider mechanisms for phasing their IT 
development such that the functionality needed to determine eligibility for human services 
programs, such as TANF or SNAP, can be added after the health components are up and 
running.  The exception to OMB Circular A-87 cost allocation principles remains in place 
through December 31, 2015, to allow such phased projects.  
 
The U.S. Departments of Health and Human Services (HHS) and Agriculture (USDA) are 
committed to a strong partnership with States and our Federal partners as we work together to 
implement the Affordable Care Act.    
 
 
Sincerely, 
 
 
/s/              /s/ 
 
Cindy Mann            Kevin Concannon 
Deputy Administrator         Undersecretary for Food, Nutrition 
and Director for Center for Medicaid, CHIP   and Consumer Services, 
and Survey & Certification,        U.S. Department of Agriculture    
Centers for Medicare & Medicaid Services, 
Department of Health & Human Services  
 
/s/              /s/ 
 
George Sheldon          Steve Larsen                 
Acting Assistant Secretary        Deputy Administrator and Director for 
for Administration for Children and Families,   Center for Consumer Information and  
Department of Health & Human Services     Insurance Oversight, 
Centers for Medicare & Medicaid Services, 
Department of Health & Human Services