January 23, 2012 
 
Dear State Exchange Grantees, Medicaid and CHIP Directors, and Health and Human Services 
Directors: 
 
On August 10, 2011, we announced a time-limited, specific exception to the cost allocation 
requirements set forth in OMB Circular A-87 (Section C.3) that requires benefitting programs to 
pay their share of the costs associated with building State-based information technology systems.  
The exception allows Federally-funded human services programs to benefit from investments in 
the design and development of State eligibility-determination systems for State-operated 
Exchanges, Medicaid and the Childrens Health Insurance Program (CHIP).  This letter provides 
additional guidance on how States may take advantage of this exception to leverage these 
investments to serve multiple programs and needs.  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.   
  
Timeline 
 
January 1, 2014 marks the expansion of health insurance coverage through new Affordable 
Insurance Exchanges (Exchanges) and Medicaid.  We encourage States to consider the benefits 
of interoperable systems and how system development can be staged to ensure that the 
Affordable Care Act timeframes are met.  Many States will make long-needed investments in 
Medicaid, CHIP and Exchange eligibility systems, and these systems need to be operational and 
fully tested no later than the summer of 2013.  While we encourage States to take into account 
the needs and requirements of human services programs in developing these systems, any human 
services system requirement that would delay meeting the deadline will not be permitted.   
 
States pursuing an integrated eligibility system strategy should consider mechanisms for phasing 
their IT development, such that the additional functionality needed to determine eligibility for 
human services programs can be added after the health components are operational.  It is not 
required that a State implement a shared eligibility system through a phased approach, but it is an 
allowable approach and may enable States to implement the health components of an enterprise 
system in accordance with the Affordable Care Act requirements.   
   
Such phased projects would be allowed under the exception to OMB Circular A-87 cost 
allocation principles, which remains in place through December 31, 2015.  States would need to 
incur costs for goods and services furnished no later than December 31, 2015 to make use of this 
exception. This would mean that if an amount has been obligated by December 31, 2015, but the 
good or service has not yet been furnished by that date, then such expenditure must be cost 
allocated as currently required under OMB Circular A-87.   
  Page 2  Additional Guidance to States on the OMB Circular A-87 Cost Allocation Exception 
 
Additional Considerations to Using the Exception 
 
1.  Maintenance and operational costs for these systems shall continue to be cost allocated as 
currently required under OMB Circular A-87.   
 
2.  Further, any service, expansion of service, or increase in capacity beyond that required 
for the health programs, must be cost allocated to the benefitting program, consistent with 
the current practice under OMB Circular A-87.  For example, the automation needed to 
track a courts determination of reasonable efforts to maintain a family is a function 
needed for title IV-E foster care and does not benefit Medicaid, CHIP, or the Exchange. 
An example of an increase in capacity that would require a State to allocate to the other 
benefiting Federal human services programs would be the need for additional 
infrastructure, equipment and/or data storage capacity. 
 
3.  To the extent that human services programs can make use of core eligibility 
determination business processes and technical services that will be used in the integrated 
eligibility systems, their ability to link to the system more easily and cost-efficiently in 
the future without requiring extensive changes to the common components is a cost-
effective approach to systems engineering.   
 
4.  Regardless of the approach, should a State elect to implement a multi-program enterprise 
system, the project team must engage all programs that may be included in the eventual 
enterprise system in a cross-program collaborative planning and design process.  The 
cross program collaboration should start as soon as possible and continue throughout the 
development life cycle of the planned enterprise system.   
 
Allowable Shared Services under the Exception  
 
A number of business processes and technical services that the Medicaid, CHIP, and Exchange 
programs may need to build or enhance to determine program eligibility and enroll clients into 
health care coverage have the potential for being useful to other Federally-funded human 
services programs.  Taking steps now to explore the feasibility of developing shared eligibility 
services across all health and human service programs will reduce the number of duplicative and 
costly siloed systems performing the same function for different programs.   
 
Under the exception to OMB Circular A-87 cost allocation principles, to the extent these 
business services are core components of the health program eligibility system, design and 
development costs would not be required to be cost allocated to the other Federally-funded 
human services programs for certain business process and technical services, such as the 
following: 
 
  Client Portals    Interfaces to: Federal and State 
  User Interfaces  verification sources; Community 
  Master Client Index  Assisters/ Outreach Organizations; 
  Business Rules Engine and Operating  Exchange Infrastructure 
Systems    Enterprise Service Bus  Page 3  Additional Guidance to States on the OMB Circular A-87 Cost Allocation Exception 
 
  Data Warehouse    Privacy and Security Controls 
  Workflow Management Tools    Business Intelligence 
  Notices    Analytic Tools, including Decision 
  Customer Services Technical Support  Support and Program Integrity 
  Automated Account Creation and Case    Telecommunications 
Notes    Information Security and Privacy 
  Identity Management   Controls 
  Document Imaging and Digitization of    Infrastructure and Data Center Hosting 
Case Records 
 
Because each States system solution may vary, States interested in taking advantage of the 
opportunities permissible under the exception should discuss their cost allocation approach with 
their representatives from the Centers for Medicare & Medicaid Services (CMS), the 
Administration for Children and Families (ACF), and Food and Nutrition Service (FNS) who are 
working together to ensure a close level of coordination.  The list above is not exhaustive, and 
there may be other services that are allowable under the exception.  As noted above, any 
expansion of these services or increase in capacity beyond that required for health programs must 
be cost allocated to the benefitting program, consistent with current practice under OMB Circular 
A-87.  CMS and the Human Services Federal partners would be pleased to discuss specific 
variations from those listed above, provided they are consistent with Federal guidance.  
 
Advance Planning Document (APD) Process 
 
On October 28, 2010, the regulations governing the APD process were changed at 45 CFR 95 
Subpart F.  The purpose of the revised APD process is to simplify and streamline the submission 
and review process for those system-related documents.  Considering the 2014 Affordable Care 
Act deadline, CMS developed an expedited APD checklist for use with Medicaid and CHIP that 
aligns with Exchange review initiatives.  The expedited APD checklist can be found here: 
http://www.medicaid.gov/AffordableCareAct/Provisions/Information-Technology-Systems-and-
Data.html.  Both ACF and FNS have agreed to accept the CMS checklist for enterprise projects 
that support multi-agency or cross-agency initiatives.   Consistent with current practice, States 
should continue to submit APDs to all program offices from which they are requesting funding, 
and if necessary, to ACFs Office on Administration that acts as the clearinghouse for all HHS-
related APDs that include two or more HHS entitlement programs and coordinates review with 
FNS.  If the State only requests funding for eligibility systems that provide functionality for the 
Medicaid and CHIP programs without the intent of building an integrated system in the future, 
the APD should be submitted directly to CMS for review and approval. 
   
CMS issued the expedited APD checklist template prior to OMBs approval of the exception to 
OMB Circular A-87 cost allocation principles.  The template does not include a specific section 
for a State to explain and document its efforts to include the common eligibility systems needs of 
human services programs under this exception.  Therefore, we request the following information 
with submission of the expedited APD checklist: 
  Page 4  Additional Guidance to States on the OMB Circular A-87 Cost Allocation Exception 
 
  A State must provide a detailed narrative to indicate which human services programs will 
eventually be included in the proposed solution.   
  For a State pursuing a phased-in IT approach, the narrative should explain how the State 
will identify, capture, and implement the foundational needs of human services programs 
as they first implement Medicaid, CHIP, and Exchange requirements for the enterprise 
system project.    
  The narrative should also identify the human services agencies and staff working on the 
design and implementation of the ACA-related system.   
 
We recognize the State might not need or use funding from ACF or FNS during the first phase of 
the IT project.  Nevertheless, the State must demonstrate in the CMS expedited APD checklist 
and accompanying narrative that the State staff responsible for the Federal human service 
programs that will eventually benefit from the new application are meaningfully involved in the 
design and development process of the common components of the enterprise system.  This level 
of coordination will alert USDA and ACF, as appropriate, of the need to monitor progress of the 
system through the review of the States APD updates and the CMS Gate Review process and 
will allow those other human services programs to transition to an active review responsibility as 
the State focuses on the unique needs of those programs in later phases of the project.   
 
Funding requests should follow the guidance of the CMS-issued expedited APD checklist, which 
summarizes the Federal requirements for planning and implementation activities.  States 
requesting funding for integrated eligibility systems should submit their APD to CMS and the 
human services program offices that will eventually benefit from the system.  The Federal 
human service agencies in ACF and USDA have committed to a timely review of these 
submissions.   
 
Please refer questions to the Federal analyst responsible for your program area.   
 
Sincerely, 
               
/s/              /s/ 
 
Cindy Mann            Kevin Concannon 
Deputy Administrator and Director for    Under Secretary for Food, Nutrition 
Center for Medicaid and CHIP Services,    and Consumer Services, 
Centers for Medicare & Medicaid Services,    U.S. Department of Agriculture 
Department of Health & Human Services  
                
/s/              /s/ 
             
George Sheldon          Steve Larsen                 
Acting Assistant Secretary for      Deputy Administrator and Director 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