DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
CMCS Informational Bulletin  
 
 
DATE:   November 9, 2017 
    
FROM:   Brian Neale, Director  
Center for Medicaid and CHIP Services  
 
SUBJECT:   Programmatic and Financial Information Regarding CHIP in a Federal 
Funding Shortfall  
 
 
The Medicare Access and Childrens Health Insurance Program (CHIP) Reauthorization Act of 
2015 (MACRA; P.L. 114-10) extended funding for CHIP through September 30, 2017.    Absent 
additional appropriations from Congress, we project that every state1 will exhaust federal 
funding at various points throughout federal fiscal year (FY) 2018, with the first state projected 
to exhaust all available federal CHIP funding, including carryover funding and redistribution 
payments, in November 2017 and the majority of states projected to exhaust funding by March 
2018.  These projections are subject to change.   
 
Under current law, there are no appropriations for providing FY 2018 CHIP allotments to states 
and there is limited funding from previous fiscal years available to fund a portion of CHIP 
expenditures in FY 2018.  Because Congress has not yet acted to appropriate additional funding 
for CHIP, the Centers for Medicare & Medicaid Services (CMS) is providing operational 
information to support state efforts during this federal funding shortfall.  This bulletin describes 
state options for transitioning children from a separate CHIP to other sources of coverage, 
actions for states to consider as they effectuate these changes, implications for CHIP-funded 
Medicaid expansion programs, key federal requirements for submitting State Plan Amendments 
(SPA), and operational information regarding how states can access the remaining funds 
available for FY 2018.  
 
CMS is available to provide technical assistance on both programmatic and financial areas to all 
states.   
 
State Options for Transitioning Children from a Separate CHIP to Other Sources of 
Coverage 
 
In the absence of federal CHIP funding, states with separate CHIP programs are not subject to 
the current CHIP Maintenance of Effort provision at section 2105(d)(3) of the Social Security 
Act (the Act). States with separate CHIPs have the option to phase out coverage, transition 
children ages 0  18 and pregnant women to the Medicaid state plan, or a combination of these 
options under a state developed approach. If a state chooses to phase out coverage, the state 
                                                 
1 State means all states, the District of Columbia, and the United States territories.   CMCS Informational Bulletin  Page 2 
 
should redetermine eligibility for children prior to termination of coverage to see if the children 
are eligible for Medicaid.  If a child is not eligible for Medicaid, the state should transfer the 
electronic accounts to the Exchange and notify the family that they should apply for coverage 
through the Federally Facilitated Marketplace (FFM).  
 
States that elect to move children to Medicaid when CHIP funding expires will receive federal 
funding at the regular Medicaid federal medical assistance percentage (FMAP) (rather than the 
CHIP enhanced federal medical assistance percentage (EFMAP)) for providing Medicaid 
coverage after CHIP funds are exhausted. 
 
Considerations in Effectuating Transition Changes 
 
In the absence of additional CHIP appropriations, based on the transition decision a state makes 
related to children and pregnant women covered through their separate CHIP, states will need to 
consider the following actions to effectuate their transition changes: 
 
  Eligibility and Enrollment Systems Modifications:  Identify and schedule the changes 
necessary to implement the transition option selected.  These changes may include: 
changes to eligibility levels for children, batch renewal processing, administrative 
transfer of children from CHIP to Medicaid, Medicaid management information systems 
(MMIS) updates, creation of new enrollee notices and revisions to existing notices, 
changes to the single streamlined online application, rules engine decision tables, and the 
Federally Facilitated Marketplace (FFM) Data Collection Tool updates (for states served 
by the FFM). When developing a release schedule for the related systems changes, states 
should allow sufficient time for testing to ensure appropriate functionality.  
  Contract Implications:  Review managed care and third party administrator contracts to 
determine impact of program phase-out.  
  Staff Training: Identify training needs for eligibility, call center, and other staff regarding 
the changes in childrens coverage.  
  Communication with Families:  Provide notice to families about the transition to other 
coverage and termination of CHIP coverage, in accordance with regulations at 42 CFR. 
457.340. In addition, consider how the state intends to make families aware of differences 
in programs, such as a transition from CHIP to Medicaid in terms of health plans, 
benefits, providers, and cost sharing.    
  Communication with Key Partners:  Consider how the state will communicate with 
health insurance issuers, providers, and other key stakeholders.   
  Continuity of Care Strategies:  Identify the states strategy for implementing policies that 
ensure continuity of care, such as: 
-  Developing procedures to determine whether some of the transitioning children 
can remain with their primary care providers, such as procedures to help families 
identify and enroll their children in a Medicaid managed care organization in 
which their former provider participates if the child is transitioning to Medicaid.   
-  Identifying children with complex health care needs who are receiving long term 
treatment, and creating agreements that allow a child to complete a treatment plan 
subsequent to leaving CHIP.   
  Submission of State Plan Amendments:  Submit required state plan amendments.  See 
below for more information.   CMCS Informational Bulletin  Page 3 
 
 
States may find it helpful to construct a timeline to ensure compliance with state and federal 
requirements. A timeline should include key actions involved in the transition of children to a 
different source of coverage, including: 
 
  When statutory and budgetary changes will be made by the state legislature 
  Projected date of exhaustion of title XXI funds 
  Timing of when redeterminations begin, if relevant  
  Timing and frequency of beneficiary notices  
  Key eligibility and enrollment system modifications 
  Key modifications to MMIS or other related systems for claims processing 
  Modifications to managed care or third party administrator contracts 
  If applicable, strategies to phase out growth of the program, such as implementation of an 
enrollment cap or freeze 
  Timing for submitting SPAs to CMS, including timing related to public notice and tribal 
consultation requirements  
 
Implications for CHIP-Funded Medicaid Expansion Programs 
 
The absence of FY 2018 CHIP appropriations also has funding implications for states with 
CHIP-funded Medicaid expansion programs.  The maintenance of effort provisions (MOE) at 
sections 1902(a)(74) and 1902(gg) of the Act require that states maintain eligibility standards, 
methodologies, [and] procedures for children that are no more restrictive than those in effect on 
March 23, 2010. The MOE extends until September 30, 2019.  Expiration of CHIP funding does 
not affect the Medicaid MOE.  Therefore, states with a CHIP-funded Medicaid expansion 
program in place as of March 23, 2010 will continue to be subject to Medicaid MOE rules if 
CHIP funding is exhausted.  These states will receive federal funding at the otherwise applicable 
Medicaid federal matching rate (rather than the enhanced CHIP matching rate) for providing 
Medicaid coverage.  Although there is a similar MOE requirement at section 2105(d)(3) of the 
Act for children in a separate CHIP, there is an exception if there is a federal funding shortfall. 
 
State Plan Amendments for Effectuating Transition Changes under the Medicaid and 
CHIP State Plans 
 
If a state with a separate CHIP decides to make coverage changes, it will need to submit a CHIP 
state plan amendment (SPA), as specified at section 2106(b) of the Act and 42 CFR 457.60.  
States interested in transitioning some or all children from a separate CHIP to Medicaid will also 
need to submit a Medicaid SPA to create or expand the uninsured optional targeted low-income 
children group under section 1902(a)(10)(A)(ii)(XIV) of the Act and 42 CFR 435.229.  
 
As a reminder, in all submissions, states will need to follow the applicable notice, tribal notice, 
and effective date regulations.  For CHIP SPAs, the submission must comply with tribal 
consultation requirements at section 2107(e)(1)(C) of the Act and public notice requirements in 
42 CFR 457.65.  A CHIP amendment may be retroactive, but restrictive amendments, those 
amendments that eliminate or restrict eligibility or benefits (e.g., enrollment freeze, reducing 
eligibility levels, etc.), must be submitted to CMS within 60 days after their effective date.   
  CMCS Informational Bulletin  Page 4 
 
Medicaid SPAs must also follow tribal consultation requirements consistent with section 
1902(a)(73) of the Act, and may be effective as early as the first day of the quarter in which an 
approvable plan is submitted to CMS, in accordance with 42 CFR 430.20.    
 
Availability of FY 2018 CHIP Funding 
 
As described above, under current law, there are no appropriations for providing FY 2018 CHIP 
allotments to states and there is limited funding from previous fiscal years available to fund a 
portion of CHIP expenditures in FY 2018.  The following sources of funding will be available to 
states to fund CHIP expenditures in FY 2018: 
 
  Unused FY 2017 CHIP allotment remaining at the end of FY 2017 and carried over into 
FY 2018, reduced by one-third under section 2104(m)(2)(B)(iv) of the Act. 
  For states projecting CHIP funding shortfalls for FY 2018, unused CHIP allotments from 
previous fiscal years are available for redistribution under section 2104(f) of the Act. 
 
Based on the most recent budget estimates provided by states to CMS for the August 2017 
budget submission, all states are projected to be shortfall states described under section 
2104(f)(2) of the Act. The total projected FY 2018 national CHIP funding shortfall is 
approximately $13.0 billion based on the August 2017 budget estimates.  The total projected 
funding available for redistribution under section 2104(f) of the Act is just under $3.0 billion, 
inclusive of redistributions payments made to date.  Please note the amount of projected 
redistribution funding is subject to change.  Based on the methodology provided in section 
2104(f)(2)(B) of the Act, because the national CHIP funding shortfall exceeds the amount of 
redistribution funding available, each shortfall state will receive a portion of the total available 
redistribution funding equal to each states proportion of the total national CHIP funding 
shortfall.  However, no state is projected to receive enough redistribution funding to cover their 
full projected FY 2018 CHIP funding shortfall. 
 
CMS Distribution Process for Redistribution Funding 
 
Section 2104(f) of the Act authorizes the redistribution of unused allotments from previous fiscal 
years to states projecting CHIP funding shortfalls for a fiscal year.  In order to provide states 
with redistribution funding, CMS will use the most up-to-date expenditure and state budget 
estimate data to calculate an interim FY 2018 redistribution payment for each shortfall state. 
Under section 2104(f)(2)(C) of the Act, the interim redistribution payment will be adjusted as 
necessary based on actual expenditures reported for FY 2018 by no later than November 30, 
2018.  CMS will follow the following process: 
 
  CMS will reach out to each state starting with states projected to exhaust their unused FY 
2017 CHIP allotments in Quarter 1 of FY 2018 (10/01/2017-12/31/2017) to obtain their 
projected monthly expenditures for the quarter. 
  CMS will issue a portion of the total interim redistribution payment for the month based 
on state need.   
  Redistribution grants will be issued in the order in which states realize funding shortfalls.  
  Total interim redistribution payments for each state are limited to that states portion of 
the national redistribution amount.    CMCS Informational Bulletin  Page 5 
 
  CMS will continuously monitor both the most recent quarterly budget estimates and the 
states Payment Management System (PMS) CHIP subaccounts to confirm projected 
shortfall dates provided by states. 
 
CMS has already issued redistribution payments to some states facing October and November 
shortfalls and is available to work with states individually to discuss funding needs and provide 
technical assistance.   
 
Process for one-third reduction to unused FY 2017 CHIP allotment carried over into FY 
2018 
 
Section 2104(m)(2)(B)(iv) of the Act states that any amounts of unused FY 2017 CHIP allotment 
that remain available for expenditure by the state in FY 2018 shall be reduced by one-third.  
Because this one-third reduction has not previously applied to unused allotment carry over, a 
number of states have requested information on the process.   
 
Once actual expenditures are finalized after November 30, 2017, CMS will calculate the final 
one-third reduction amount based on actual expenditures reported for FY 2017.  CMS will issue 
negative grants to recover the one-third reduction amounts from states Payment Management 
System CHIP17-301 and/or CHIP17 subaccounts after November 30, 2017.  As needed, CMS 
will reach out to and work with individual states to make any necessary draw adjustments.  
 
Should states have programmatic or CHIP funding questions or need technical assistance, please 
contact your CMS CHIP Project Officer.