DEPARTMENT OF HEALTH & HUMAN SERVICES 
Health Care Financing Administration  
 Center for Medicaid and State Operations 
7500 Security Boulevard 
Baltimore, MD 21244-1850 
August 27, 1997   
Dear State Official:   
The Balanced Budget Act of 1997 created a new childrens health insurance program under Title XXI of the Social 
Security Act. This new Title enables States to initiate and expand health insurance coverage for uninsured children. The 
Department of Health and Human Services is pleased to be a part of this historic initiative and is looking forward to 
working with States on the implementation and oversight of these programs. These programs will make an unprecedented 
investment and contribution to the quality of life for millions of vulnerable children.   
The President signed the childrens health title into law just four weeks ago. The short time frame between the enactment 
of the bill and the effective date of the legislation requires that States and the Department work together expeditiously so 
that States can begin implementing new programs as soon as possible. While there are a number of technical questions to 
be resolved, this letter outlines the basic provisions of the program. A summary of the new legislation is enclosed.   
OVERVIEW OF PROGRAM   
Determination of State Allotments. Funding for the new program is available through an enhanced match of State 
expenditures beginning on October 1, 1997. To receive Federal matching funds, a State must have an approved State plan. 
The total Federal payments available to States are specified in statute and will be allocated to States according to the 
statutory formula that is based on the number of uninsured, low-income children in each State and a geographic cost 
factor. We plan to publish by mid-September, through the rulemaking process, the preliminary fiscal year 1998 allotments 
of Federal funds for each State and territory, along with the assumptions and methodologies used to determine these 
allotments. It is important to note that while funding is available October 1, 1997, for States with approved plans, the new 
law allows each State to access its fiscal year 1998 allotment for three years for expenditures on childrens health 
insurance coverage under Title XXI. For fiscal year 1998, the total amount allocated for the program is $4.275 billion.   
Requirement to Submit a State Plan. In order to be eligible for payment under this new legislation, each State must submit 
one Title XXI plan for approval by the Secretary that details how the State intends to use the funds. Under the law, a State 
plan is considered approved in 90 days unless the Secretary notifies the State in writing that the plan is disapproved or that 
specified additional information is needed. If a State wishes to use Medicaid to expand coverage through Title XXI, it 
must submit a Medicaid plan amendment for an eligibility expansion. This plan should encompass all of the child health 
assistance being provided using title XXI funding. It is important to note that, once a Title XXI plan is approved, the State 
will be obligated to continue providing benefits as described in that plan until the plan is amended. (The same is true 
forMedicaid.) Consistent with the law, however, States have the flexibility to modify their plans by submitting state plan 
amendments. The Department will be working with States to facilitate and expedite the application and approval process.   
Program Options. The law allows States to expand coverage for children through a separate child health insurance 
program, through the Medicaid program, or through a combination of these programs. States have the following options 
under Title XXI:   
Option to Expand Medicaid. States may elect to expand coverage through Medicaid. This new option for States would be 
available for children who do not qualify for Medicaid under State rules in effect as of April 15, 1997. Under this option, 
current Medicaid rules would apply.   
Option to Create or Expand a Separate Program. States electing to use their available Title XXI funds to establish or 
expand a separate child health insurance program will be subject to new cost-sharing and benefit rules in the law (see 
summary). These States must establish enrollment systems that are coordinated with Medicaid and other sources of health 
coverage for children and also must screen children during the application process to determine if they are eligible for 
Medicaid and, if they are, enroll these children promptly in Medicaid. The law requires that any State that lowers its 
Medicaid eligibility standards for children below the June 1, 1997 levels be denied access to the new child health funds.   
Combination of Options. The new law allows States to elect to use a combination of the Medicaid program and a separate 
child health insurance program to increase health coverage for children. For example, a State may cover children up to 
133% of poverty through Medicaid and a targeted group of children above that level through a separate program. For the 
children the State chooses to cover under Medicaid, the description provided under Option to Expand Medicaid would 
apply. Similarly, for children the State chooses to cover under a separate program, the provisions outlined above in  Option to Create or Expand a Separate Program would apply.   
Matching Rate. For qualifying expenditures, States will receive an enhanced federal matching rate that is equal to its the 
current FMAP increased by 30 percent of the difference between its regular matching rate and 100 percent, except that the 
enhanced match can not exceed 85 percent. It is important to note, for planning purposes, that a State using the Medicaid 
expansion may continue to collect a Federal match, at the States regular matching rate, after exceeding its allotment. A 
State that elects to put its Title XXI funds into a separate state insurance program cannot receive additional federal funds 
for the cost of covering more children once the Title XXI funds are exhausted. If a State does not use all of its Title XXI 
funds in any given year, States may access the remaining unused funds in the two succeeding fiscal years.   
Limitations on Use of Funds. The new child health program focus on low-income children and, therefore, Title XXI 
funding is available for targeted low-income children as described in the law. In their plan, States must describe the 
standards used to determine the eligibility of targetedlow-income children under this new program. Under the statute, 
funding may not be used for children who are: eligible for Medicaid or other health insurance coverage; inmates of a 
public institution; patients in an institution for mental diseases; or in families who are eligible for coverage under a state 
health benefits plan because of a family members employment with a public agency in the State. Although children found 
to be eligible for other health insurance coverage generally are not eligible for Title XXI assistance, children currently 
covered by a State childrens health program that receives no federal funds and was in operation before July 1, 1997 can 
be considered targeted low income children. Title XXI does not create an entitlement for any child served under a separate 
State program. States may claim up to 10 percent of their total expenditures for administration, outreach and the direct 
purchase of health services listed in the law. The law requires that Federal payment for these types of matchable expenses 
only may be made based on actual or expected expenditures for a given period under the child health assistance plan (up 
to the amount of the States allotment), not based on the States allotment.   
Additional Medicaid Changes. In conjunction with the new State child health insurance program, the Balanced Budget 
Act included three new provisions designed to increase childrens health care coverage through the Medicaid program: (1) 
presumptive eligibility for children;   
(2) coverage of SSI children; and (3) the option to provide 12 month continuous coverage.   
Presumptive Eligibility: States now have the option of establishing a presumptive Medicaid eligibility procedure to 
facilitate the enrollment of children. Certain qualified entities may enroll children in Medicaid on a temporary basis, 
relying on information supplied by the family on income levels. This can be a particularly useful tool for reaching 
children who are not receiving welfare and whose parents are employed at low-wage jobs that do not offer health 
insurance coverage.   
Coverage of SSI Children: States also are now required to continue Medicaid coverage for all disabled children who were 
receiving SSI on August 22, 1996 but who lost their Medicaid eligibility as a result of last years law restricting the SSI 
child disability standards.   
12 Month Continuous Eligibility: States now have the option to guarantee 12 months of coverage to children enrolled in 
Medicaid regardless of whether the child experiences changes in family income or other circumstances that would render 
him/her ineligible for Medicaid during the 12 month period.   
Overview of Implementation   
Implementation of the new program will involve a crosscutting effort throughout the Department of Health and Human 
Services. The new program will be administered by the Center for Medicaid and State Operations (CMSO) within HCFA. 
We will be working jointly with the Health Resources and Services Administration (HRSA) to implement and monitor the 
new program as a part of the Departments overall strategy to support coordination with other Federal and State health 
programs in providing outreach to uninsured children and promoting coordination of care and other public health 
interventions.   
We are very excited about this historic opportunity to work in partnership with States to implement a program that holds 
great promise of bringing health care to uninsured, low-income children. We recognize the urgency of this issue and 
States desire to move quickly to cover as many uninsured children as possible. To assist States with their plans, we are 
developing the necessary material and instructions to implement the programs. There are, however, many issues that need 
to be resolved.   
We are preparing information on allotments and developing a template that will provide information on the requirements 
and options under the new law to assist States in submitting their plans. We plan to have both available to States by mid-
September. We also are working on developing a procedure for plan submittal, development of financial reporting forms  and claims procedures, coordination with Medicaid expansions for childrens health, and the development of procedures 
for annual reports, evaluations, and studies. HHS staff will gladly offer technical assistance to any State that requests it, 
and we will be creating avenues such as a web page to help states answer immediate questions about the new legislation 
and its implementation. We will be soliciting input and feedback from interested consumer and advocacy groups, the 
National Governors Association and other State and local government groups, as well as individual states, throughout the 
entire process.   
We are working to get information out to the states as quickly as possible. If you have questions about issues not 
addressed in this letter, please contact Rick Fenton, Deputy Director of the Family and Childrens Health Programs Group 
at (410) 786-5920.   
Sincerely,   
/s/ 
Sally K. Richardson   
Director   
Center for Medicaid and State Operations   
 
Enclosure   
cc: Governors Office