DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland 21244-1850 
 
Center for Medicaid and State Operations 
                     
                    SMDL #03-003 
               
              March 27, 2003 
 
                   
Dear State Medicaid Directors and State Health Officials: 
 
We are writing to inform you of the Centers for Medicare & Medicaid Services (CMS) plan to 
implement the provisions of the State Children's Health Insurance Program (SCHIP) for the 
redistribution of $2,206,440,396 in states' unexpended federal fiscal year (FY) 2000 SCHIP 
allotments.  CMS has developed an interim strategy for redistribution of the unexpended FY 
2000 funds.  This interim redistribution will be limited to about one-half of the unexpended FY 
2000 allotments.  The interim redistribution will be made only to those states (including the 
commonwealths and territories) that have fully expended such allotments by the end of FY 2002 
(September 30, 2002). 
 
Under the SCHIP statute, title XXI of the Social Security Act (the Act), states are provided 
federal funds through federal fiscal year specific and state specific allotments. Generally, under 
section 2104(e) of the Act, each state's fiscal year specific SCHIP allotment is available for 
expenditure by the state only for a 3-year "period of availability."  This includes the fiscal year in 
which these funds were allotted and the two succeeding fiscal years.  Section 2104(f) of the Act 
provides for the Secretary to redistribute the amounts of the SCHIP allotments that are 
unexpended after the initial period of availability.  These funds are available through the end of 
the fiscal year in which they are redistributed.  The 3-year period of availability for states' FY 
2000 SCHIP allotments ended at the end of FY 2002. 
 
The Benefits Improvement and Protection Act of 2000 (BIPA) amended the Act to provide an 
exception to these processes for FY 1998 and FY 1999 allotments unexpended in the 3-year 
period of availability.  Section 2104(g) of the Act specifies a redistribution methodology and 
provides that those states that did not fully expend their FY 1998 and FY 1999 allotments during 
the respective 3-year periods of availability could retain the availability of a portion of their 
unexpended allotments.  Furthermore, the statute extended the availability of these redistributed 
and retained allotments through FY 2002. 
 
For the FY 2000 allotments, however, sections 2104(e) and (f) of the Act requires us to do a 
redistribution of the unexpended funds.  Under the current section 2104(f) of the Act, the 
Secretary must determine an "appropriate procedure" for redistribution of unexpended FY 2000 
allotments.  This redistribution may be made only to those states that fully expended their FY 
2000 allotments during the associated 3-year period of availability.  Unlike the BIPA  
 
 
  Page 2  State Medicaid Directors and State Health Officials 
 
redistribution formula, there is no provision for states that did not fully expend their FY 2000 
allotments during the 3-year period of availability to retain any portion of their unexpended FY 
2000 allotment amounts.  Furthermore, under section 2104(e) of the Act, any redistribution 
amounts of the FY 2000 allotments would remain available to states only through the end of the 
fiscal year in which they are realloted, that is, until the end of FY 2003 (September 30, 2003). 
 
Congress has been considering legislation that would have specified a formula for redistribution 
of the unexpended FY 2000 allotments.  Since the period of availability for the redistributed 
allotments is only until the end of FY 2003, we are taking action to implement section 2104(f) of 
the Act.  CMS will provide an interim redistribution of about one-half of aggregate unexpended 
FY 2000 allotments to allow a continued flow of SCHIP funds to the redistribution states to 
continue operation of their SCHIP programs.  This interim redistribution does not constitute the 
Secretary's final determination of an "appropriate procedure" for a redistribution of the FY 2000 
SCHIP allotments, and is subject to adjustment when such a procedure is adopted.  However, we 
anticipate that Congress may continue to consider this issue in the next few months, and the 
interim redistribution is being made now in that context. 
 
The amounts of the interim redistribution are intended to balance the potential need to minimize 
future adjustments when the final redistribution methodology redistribution is determined with 
the need to provide for a continued flow of funds to the redistribution states.  As indicated above, 
section 2104(f) of the Act requires the redistribution of the unexpended FY 2000 allotments to 
those states that fully expended such allotments by the end of FY 2002.  We have determined 
that there are 14 states and 5 territories and commonwealths that qualify for a redistribution 
under this provision.   
 
Described below is an interim redistribution of the FY 2000 funds based on the minimum of 
three possible options for a final redistribution methodology.  
 
  Option 1.  The unexpended FY 2000 allotments would be reallocated based on certain state 
specific factors, such as the number of uninsured children and other individuals in the state, 
the numbers of individuals under the poverty level in the state, and the relative per capita 
income in the state.  
  
  Option 2.  Unexpended FY 2000 allotments would be reallocated based on the redistribution 
states' original FY 2000 SCHIP allotments. 
   
  Option 3.  The unexpended FY 2000 allotments would be reallocated based on a 
Congressional proposal.  Under this proposal, redistribution states would receive about one-
half of the total unexpended FY 2000 allotments. The funds would be allocated in 
accordance with the amounts of such states' total expenditures during the 3-year period of 
availability (FY 2000 - FY 2002) that are in excess of the states' FY 2000 allotments.    
 
 
 
  Page 3  State Medicaid Directors and State Health Officials 
 
The minimum of the amounts determined under the methods described in the three options above 
was chosen because this approach will minimize the potential need to make future adjustments 
under the final redistribution process.   In determining the interim amount, we made sure States 
would have sufficient funds in order to operate their programs through FY 2003, based on their 
projected FY 2003 spending estimates. 
 
CMS intends to issue the final redistribution methodology (as determined by the Secretary) in the 
Federal Register by June 30, 2003, unless Congress passes legislation to specify the disposition 
of states unexpended FY 2002 allotments.  Redistribution by the end of June will allow the 
states one quarter to expend the redistribution funds. 
 
For the territories and commonwealths, the interim redistribution is based on the full amount of 
the unexpended FY 2000 allotments because we do not anticipate that the final redistribution 
methodology would affect the amount available to each territory and commonwealth.  We 
determined the interim redistribution based on the method used in the current statute for the 
unexpended FY 1998 and FY 1999 allotments, under which 1.05 percent of the total unexpended 
allotment funds were reserved for the territories and commonwealths.  This reserved amount was 
then allocated among them in proportion to their FY 2000 allotments. 
 
Attached to this letter is a chart containing the amounts of the interim redistribution for each 
redistribution state.  As indicated in the chart, a total $2,206,440,396 in unexpended FY 2000 
allotments remained at the end of FY 2002.  A total of $1,034,898,780 will be redistributed on an 
interim basis.  Of this total interim redistribution, the states will have available a total of 
$1,011,731,155, and the territories and commonwealths will have available a total of 
$23,167,624. 
 
Consistent with CMS policy on redistributions, redistribution states have the option of choosing 
the ordering of their FY 2000 redistribution amounts in the application of expenditures against 
their available SCHIP allotments.  We will be contacting the 14 redistribution states, and the 5 
commonwealths and territories to obtain their election with respect to this interim redistribution.   
Upon final redistribution, these states will be permitted to revise their ordering election for the 
FY 2000 redistribution, and CMS will adjust its accounting for state payments to make that 
election effective as of the beginning of the fiscal year. 
 
If you have any questions regarding this issue, please contact the CMS Regional Office 
responsible for your state. 
 
 
Sincerely, 
             
            /s/ 
                 
Dennis G. Smith 
Director 
  Page 4  State Medicaid Directors and State Health Officials 
 
 
Enclosure 
 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
   for Medicaid and State Operations 
 
Michelle Mickey 
Acting Director, Health Policy Unit 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Brent Ewig 
Senior Director, Access Policy 
Association of State and Territorial Health Officials 
 
Jim Frogue 
Acting Director, Health and Human Services Task Force  
American Legislative Exchange Council 
 
Trudi Matthews 
Senior Health Policy Analyst 
Council of State Governments  ATTACHMENT 
 
 
INTERIM REDISTRIBUTION PAYMENT AMOUNTS FOR 
UNEXPENDED FY 2000 SCHIP ALLOTMENTS 
  FY 2000 
STATE  INTERIM REDISTRIBUTION 
  PAYMENT AMOUNTS 
   
Alaska  $20,231,353
Kansas  $21,481,440
Kentucky  $71,982,061
Maine  $14,670,423
Maryland  $114,945,511
Massachusetts  $53,096,780
Minnesota  $16,765,515
Mississippi  $40,863,532
New Jersey  $110,931,518
New York  $414,465,389
Rhode Island  $25,048,495
South Carolina  $32,649,064
West Virginia  $18,804,528
Wisconsin  $55,795,545
TOTAL STATES ONLY $1,011,731,155
 
COMMONWEALTHS AND TERRITORIES 
Puerto Rico  $21,221,544
Guam  $810,867
Virgin Islands  $602,358
American Samoa  $278,011
Northern Mariana Islands  $254,844
TOTAL COMMONWEALTHS AND TERRITORIES $23,167,624
 
NATIONAL TOTAL  $1,034,898,780