October 10, 1997  
Dear State Medicaid Director:  
The purpose of this letter is to provide initial policy and State plan guidance on implementing 
the new health coverage provisions for children in the Balanced Budget Act of 1997 (P.L. 105-
33, BBA 97) that apply under Medicaid.  
The new law creates a new Children's Health Insurance Program (CHIP) in title XXI of the 
Social Security Act and permits the expansion of Medicaid eligibility for children. These 
changes allow a State to expand coverage for uninsured, low-income children through the 
Medicaid program, through a new or expanded separate child health insurance program, or 
through a combination of the Medicaid program and a separate child health insurance program. 
To allow States to cover these children under Medicaid, section 4911 of the BBA 97 establishes 
a new optional group of targeted low income children.  
The new law also added three other options for States to expand coverage of children under 
Medicaid. Section 4912 amends title XIX to add an option for States to provide presumptive 
Medicaid eligibility to children for a limited period of time. Section 4731 amends title XIX to 
give States the option to provide continuous eligibility to children for up to a year. This section 
also gives States the option to accelerate the phase-in Medicaid coverage of children under the 
eligibility group for children under age 19 in families with income up to 100% of the Federal 
poverty level.  
In order to expand coverage for children through the Medicaid program under these options, you 
must  
amend your Medicaid State plan. Attached are draft preprint (PDF 76KB) pages for amending 
a Medicaid State plan to adopt any of the Medicaid options mentioned above. These draft 
pages, or other preprint pages which reflect the requirements of the law, can be used pending 
publication by HCFA of final State plan preprint pages for these options. These should be 
treated as standard State plan amendments, which you should submit to your HCFA regional 
office in accordance with the usual procedures for submitting State plan amendments. State 
plan amendments can be effective no earlier than the first day of the quarter in which they are 
submitted to the regional office.  
States choosing to implement the Children's Health Insurance Program through Medicaid may 
receive an enhanced federal match for expenditures on optional targeted low-income and  accelerated poverty level children. To receive an enhanced match for targeted low-income 
children, States must submit and have approved a State child health plan under title XXI. (An 
abbreviated title XXI child health plan can be  
submitted in such cases.) To facilitate the review and approval process, we encourage you to 
submit both the Medicaid State plan amendment and the title XXI State child health plan to the 
regional office at the same time. Your regional office is prepared to provide any assistance that 
you may need in preparing your State child health plan or Medicaid State plan amendments to 
implement the Medicaid options discussed in this letter.  
We are working closely with the joint Federal/State Eligibility Technical Advisory Group to 
resolve policy issues identified during the implementation process. That process is 
continuing and will culminate in the publication of new State Medicaid Manual guidelines 
in the near future. In the meantime, we have attached initial guidance on some of the issues 
related to these provisions. The  
guidance includes the funding source for each option, the availability of an enhanced match rate, 
and an explanation of when title XIX payments will reduce the title XXI allotment. The attached 
guidance will be included in a broader series of questions and answers addressing issues related 
to implementation of CHIP in general. The broader series is available on the Internet at 
"www.hcfa.gov." (If you wish, your HCFA regional office will also provide you with a copy of 
all questions and answers as they are placed on the Internet.)  
We will keep you informed as new policy guidance becomes available. In the meantime, if there 
are any questions, please contact your HCFA regional office staff.  
Sincerely,  
Sally K. Richardson Director Center for Medicaid and State Operations  
Attachments 
cc: All HRSA/HCFA Regional Administrators