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, CHIP, and Survey & Certification 
 
SMDL # 10-023 
 
November 9, 2010  
RE: Political Subdivisions  
 
Dear State Medicaid Director:  
 
The purpose of this letter is to clarify that determination of compliance with the political 
subdivision provisions in section 5001(g)(2) of the American Recovery and Reinvestment Act 
of 2009 (Recovery Act) should be consistent with the provisions of section 1905(cc) of the 
Social Security Act (Act), which was added by section 10201(c)(6) of the Patient Protection and 
Affordable Care Act (Affordable Care Act).  While we do not believe that this clarification 
should affect most States, we hope that affected States will find it useful. 
 
Background 
 
Section 5001 of the Recovery Act provided for an increase in the Federal Medical Assistance 
Percentage (FMAP), which is the Federal share of Medicaid expenditures for medical services, 
for the duration of a "Recession Adjustment Period".  Under section 5001(g)(2), a prerequisite 
for receipt of such increased Federal funding is that States not increase the percentage of the non-
Federal share of Medicaid expenditures that political subdivisions are required to pay from the 
percentage required under the State plan on September 30, 2008.  As we discuss in more detail 
below, new section 1905(cc) of the Act contains language that affects the treatment of the 
political subdivision provision under the Recovery Act.  And, as indicated in a CMCS 
Informational Bulletin issued on August 18, 2010, the Education, Jobs and Medicaid Assistance 
Act (P.L. 111-226) extended the increased FMAP under the Recovery Act through June 30, 
2011.   
 
In a letter to State Medicaid Directors dated June 21, 2010, available at 
http://www.cms.gov/smdl/downloads/SMD10010.pdf, CMS clarified the application of the 
political subdivision provision to the treatment of voluntary contributions by political 
subdivisions to the non-Federal share of Medicaid expenditures, in light of the language of 
section 1905(cc) of the Act.  This discussion of voluntary contributions is still valid.  The letter 
also discussed two options for the treatment of required contributions from political subdivisions 
under a State plan but that discussion did not fully reflect the provisions of section 1905(cc) of 
the Act.  In addition, CMS previously issued language for State attestations of compliance with 
the Recovery Act provisions, including those related to political subdivisions; such attestation 
language has also been included in the grant award letters issued to States related to acceptance 
of the increased Federal funds associated with the increased FMAP.  These attestations did not 
reflect the effect of section 1905(cc) of the Act.    Page 2  State Medicaid Directors 
 
In this letter, we are clarifying the discussion of the determination of compliance with the 
political subdivision provision under the Recovery Act, and we are updating the attestations, to 
give full meaning to the language of section 1905(cc) of the Act as it affects section 5001(g)(2) 
of the Recovery Act.   
 
Section 1905(cc) of the Act, as added by 10201(c)(6) of the Affordable Care Act 
 
Section 10201(c)(6) of the Affordable Care Act added section 1905(cc) to the Act.  The first 
sentence of section 1905(cc) implements a provision for political subdivisions relative to an 
increase in States FMAPs applicable beginning in January 2014.  The provision is similar to the 
provision under section 5001(g)(2) of the Recovery Act, but section 1905(cc) language included 
some significant changes.  The second sentence of section 1905(cc) contains statutory direction 
on the treatment of voluntary contributions by political subdivisions, as discussed in our June 21, 
2010 letter to State Medicaid Directors.  The third sentence states that: The treatment of 
voluntary contributions, and the treatment of contributions required by a State under the State 
plan under this title, or State law, as provided by this subsection, shall also apply to the increases 
in the Federal Medical Assistance Percentage under section 5001 of the American Recovery and 
Reinvestment Act of 2009. 
 
While the Affordable Care Act did not amend the political subdivision provisions under section 
5001(g)(2) of the Recovery Act, the last sentence of the new section 1905(cc) of the Act made a 
key change in how those provisions apply.  Under section 5001(g)(2) of the Recovery Act, 
compliance was determined by examining the percentage contributions political subdivisions 
were required to make under the State Medicaid plan on September 30, 2008.  The new section 
1905(cc) states that to comply with the political subdivision provision, the maximum percentage 
contributions that political subdivisions are required to contribute in any quarter must reflect  
the requirements of the Medicaid State plan, or State law, as provided by this subsection as of 
September 30, 2008. We read this language to mean that, if the State plan or State law in effect 
on September 30, 2008 provided for changes in the percentage contributions or dollar amount 
contributions by political subdivisions, those changes must be given effect as applicable to the 
current period.   
 
Additional language in the new section 1905(cc) of the Act further affects the determination of 
compliance with the political subdivision provisions under the Recovery Act.  The final phrase in 
section 5001(g)(2) of the Recovery Act refers to determining the non-Federal share percentage 
contribution by political subdivisions as would have been required by the State prior to 
application of this section.  The final phrase in the first sentence of section 1905(cc) of the Act 
refers to determining the required percentage contribution by the state without regard to any 
such increase, referring to the increase in FMAP.  We view this language as clarifying that the 
required contribution by a political subdivision in the period at issue must be measured as a 
percentage of the non-Federal share that would apply if there were no increased FMAP.  Page 3  State Medicaid Directors 
 
In determining compliance with the political subdivision provisions under section 5001(g)(2) of 
the Recovery Act, States need to take into account the effect of these provisions of section 
1905(cc) of the Act.  
 
Attestation of Compliance with Political Subdivision Provision.  We are revising the "attestation 
language" related to the political subdivisions provision contained in all future Recovery Act 
grant awards consistent with this guidance. The language will now read as follows: 
 
3.  In the case of a State that requires political subdivisions within the State to contribute 
toward the non-Federal share of expenditures  under the Medicaid program, the State 
shall not be eligible for an increase in its FMAP under section (b) or (c) of section 5001 
of the Recovery Act, if it requires such political subdivisions to contribute a greater 
percentage of the non-Federal share of such expenditures, or a greater percentage of the 
non-Federal share of payments under section 1923 of the Social Security Act (the Act) 
than the respective percentages that would have been required under the State Medicaid 
plan, State law, or both, as in effect on September 30, 2008, without regard to such 
increase.  Voluntary contributions by a political subdivision to the non-Federal share of 
expenditures under the State plan under this title or to the non-Federal share of payments 
under section 1923 of the Act shall not be considered to be required contributions for 
purposes of this Recovery Act provision.  (Section 5001(g)(2) of the Recovery Act, as 
modified by section 1905(cc) of the Act as amended by section 10201(c)(6) of the 
Affordable Care Act.) 
 
We hope you will find this guidance useful. CMS will continue to provide technical assistance to 
States seeking to demonstrate compliance with section 5001(g)(2) of the Recovery Act. 
Questions regarding this guidance may be directed to Richard Strauss, Senior Financial Advisor, 
CMCS at 410-786-2019.  
 
            Sincerely, 
 
            /s/ 
 
            Cindy Mann 
            Director 
 
cc:  
 
CMS Regional Administrators  
 
CMS Associate Regional Administrators  
Division of Medicaid and Childrens Health  
  Page 4  State Medicaid Directors 
 
Richard Fenton  
Acting Director  
Health Services Division  
American Public Human Services Association 
 
Joy Wilson  
Director, Health Committee  
National Conference of State Legislatures  
 
Matt Salo  
Director of Health Legislation  
National Governors Association  
 
Debra Miller  
Director for Health Policy  
Council of State Governments  
 
Christine Evans, M.P.H.  
Director, Government Relations  
Association of State and Territorial Health Officials  
 
Carol Steckel  
President  
National Association of Medicaid Directors 
 
Alan R. Weil, J.D., M.P.P.  
Executive Director  
National Academy for State Health Policy