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 and State Operations 
SMD# 09-003 
ARRA # 3 
June 17, 2009 
Dear State Medicaid Director: 
This letter is one of a series designed to provide guidance on the implementation of the American 
Recovery and Reinvestment Act of 2009 (ARRA), Public Law 111-5.  It summarizes most 
sections of ARRA that impact titles XIX (the Medicaid program) and XXI (the Childrens Health 
Insurance Program, or CHIP) of the Social Security Act (the Act) and provides detail on the 
sections specific to payments that should not be counted for purposes of eligibility for Federal 
programs.  Future State Medicaid Director letters and other technical guidance will be issued in 
the coming weeks and months, providing details on the implementation of all other sections, 
including the Health Information Technology (HIT) provisions and provisions that directly affect 
American Indian and Alaska Natives enrolled in Medicaid and CHIP. 
ARRA is divided into two parts: Division A and Division B.  All of the detailed sections in this 
letter are part of Division B; however, there are many sections in Division A with implications 
for State Medicaid programs, albeit less direct.  We welcome questions from the States on any 
part of ARRA that impacts titles XIX or XXI and we commit to working with States on any 
sections of the new law that raise concerns or challenges for States.  Please continue to submit 
questions to CMSOARRAQuestions@cms.hhs.gov.  We will post the questions and answers on 
a continual basis at http://www.cms.hhs.gov/Recovery/09_Medicaid.asp#TopOfPage. 
Division B, Title I Tax, Unemployment, Health, State Fiscal Relief, And 
Other Provisions, Section 1001  Making Work Pay Tax Credit 
Section 1001 of ARRA provides for a credit against the taxes paid by most working individuals. 
The credit is the lower of 6.2 percent of the earned income of the taxpayer, or $400 ($800 for a 
joint return), and is available for the 2009 and 2010 tax years.  Subsection 1001(c) of ARRA 
further provides that any credit or refund made under section 1001 will be disregarded for 
purposes of all Federal and federally-assisted programs, including both the Medicaid and CHIP 
programs.  Enclosure A provides more detailed guidance with regard to implementing this 
section. 
Title IIAssistance for Unemployed Workers and Struggling Families  
Section 2002  Increase in Unemployment Compensation Benefits 
Section 2002 of ARRA provides for an increase in unemployment compensation benefits for 
individuals.  Subsection 2002(h) of ARRA further provides that the monthly equivalent of any 
additional compensation paid under section 2002 shall be disregarded when considering the 
amount of income of an individual for any purpose under the Medicaid and CHIP programs.  
Enclosure B provides detailed guidance with regard to implementing this section.  Page 2  State Medicaid Director 
Section 2201  Economic Recovery Payment to Recipients of Social Security, Supplemental 
Security Income, Railroad Retirement Benefits, and Veterans Disability Compensation or 
Pension Benefits. 
Section 2201 of ARRA provides for a one-time payment of $250 to individuals who are eligible 
for benefits under any of the programs listed above, and who meet certain other requirements 
described in section 2201.  Subsection 2201(c) of ARRA further provides that the payments 
made under section 2201 will be disregarded for purposes of all Federal and federally-assisted 
programs.  This includes both the Medicaid and CHIP programs.  Enclosure C provides specific 
guidance with regard to implementing this section.   
Section 2202 - Special Credit for Certain Government Retirees 
Section 2202 of ARRA provides for a credit against taxes of $250 ($500 in the case of a joint 
return where both spouses are eligible) for recipients of pensions or annuities for service 
performed for the Federal Government or any State government.  Subsection 2202(d) of ARRA 
further provides that any credit or refund made as a result of this provision cannot be taken into 
account as income or resources for two months for purposes of any Federal or federally-assisted 
programs, including the Medicaid and CHIP programs.    Enclosure D provides specific guidance 
with regard to implementing this section. 
Title VState Fiscal Relief  
Section 5001  Temporary Increase of Medicaid FMAP 
As States are aware, Section 5001 of ARRA increased the higher of each States 2008 or 2009 
Federal Medical Assistance Percentage (FMAP) rate by 6.2 percentage points.  Similarly, the 
increase will be applied in the next two fiscal years to the higher of the current or previous years 
FMAP (e.g. FY 2010 will be based on the higher of the FY 2009 rate or the FY 2010 rate, FY 
2011 will be based on the higher of  FY 2010 or FY 2011) for the duration of the recession 
adjustment period (October 1, 2008 to December 31, 2010).  The FMAP rate is further increased 
for any calendar quarter in which the State experiences a greater than 1.5 percentage point 
increase in unemployment according to the Bureau of Labor Statistics. 
A State is not eligible for these increases if it has restricted its Medicaid eligibility standards, 
methodologies, or procedures after July 1, 2008, or if the State deposits or credits any amounts 
attributable (directly or indirectly) to the increased FMAP to any reserve or rainy day fund of the 
State.  States are also ineligible if the State requires political subdivisions within the State to 
contribute for quarters beginning October 1, 2008, and ending December 2010, a greater 
percentage of the non-Federal share of Medicaid.  Additionally, the increased FMAP is not 
available for any claims received by the State on days they are out of compliance with the 
practitioner prompt pay requirements.  These prompt pay requirements are then extended to 
hospital and nursing facility provider claims effective June 1, 2009. 
Guidance concerning the eligibility maintenance of effort (MOE) requirements was released on 
March 25, 2009.  That guidance should be viewed as the beginning of the dialogue between 
CMS and the States on this provision, but it requires further clarification.  Please see Enclosure E 
for two such clarifications.  Page 3  State Medicaid Director 
Section 5002 - Temporary Increase in Disproportionate Share Hospitals (DSH) Allotments 
During Recession 
Section 5002 of ARRA increases the State Medicaid DSH allotments for fiscal year (FY) 2009 
by 2.5 percent.  Section 5002 further provides that the FY 2010 State Medicaid DSH allotments 
would then be 102.5 percent of the FY 2009 increased allotment, unless the pre-ARRA 
calculation of the States FY 2010 Medicaid DSH allotment would have resulted in a higher 
allotment. 
Section 5003 - Extension of the Moratoria on Certain Medicaid Final Regulations 
The Congressional moratoria that were placed on the interim final regulation relating to optional 
case management services and the final regulation on allowable provider taxes under the 
Supplemental Appropriations Act of 2008 (P.L. 110-252) are extended until July 1, 2009 in 
Section 5003 of ARRA.  Similarly, the Congressional moratorium placed on the final regulation 
concerning school-based administration and transportation services is extended until July 1, 
2009.  Additionally, CMS is prohibited from taking any action on expenditures made for services 
between December 8, 2008, and June 30, 2009 implementing the final regulation relating to the 
Medicaid definition of outpatient hospital facility services published in the Federal Register on 
November 7, 2008. 
This section also expressed the sense of Congress that the following proposed regulations not 
be promulgated as final regulations:  Medicaid Cost Limit for Certain Providers, Medicaid 
Payments for Graduate Medical Education, and Rehabilitative Services. 
On May 6, 2009, CMS proposed in the Federal Register a full rescission of the School-Based 
Services Final Rule and the Outpatient Services Definition Final Rule, and a partial rescission of 
the Case Management Services Interim Final Rule (CMS 2287-P2).    The provisions of the Case 
Management Services Interim Final Rule that would be rescinded include the definition of case 
management services for individuals transitioning from institutional to community services, the 
single case manager requirement, the requirement for payment methodologies based on 15 
minute units of service, and the prohibition of providers authorizing services.  Additionally, the 
rescission removed restrictions on Medicaid Federal Financial Participation for case management 
services that are a component of another Medicaid covered service, integral to the administration 
of other non-medical programs, or are Medicaid administrative activities.  All other provisions 
would remain in effect. 
Additionally, CMS published a proposed rule to delay enforcement of certain portions of the 
final rule on allowable provider taxes (CMS 2275-P2). The provisions of the provider tax rule 
where enforcement would be delayed include only the hold harmless clarifications.  The 
revisions to the threshold levels under the regulatory indirect guarantee hold harmless 
arrangement test to reflect provisions of the Tax Relief and Health Care Act of 2006 and the 
amended definition of the class of managed care organization services in accordance with the 
Deficit Reduction Act of 2005 would remain in effect.  Page 4  State Medicaid Director 
Section 5004 - Extension of Transitional Medical Assistance (TMA) 
On April 6, 2009, CMS issued a State Medicaid Director letter that provides guidance on section 
5004 of ARRA which extends the Transitional Medical Assistance program for 18 months 
effective July 1, 2009, through December 31, 2010.  The letter also provides guidance on the 
new option in ARRA for States to modify TMA eligibility requirements.  Specifically, ARRA 
allows States to extend families Medicaid eligibility under TMA for an initial period of 12 
months, rather than an initial period of six months followed by a second 6-month period.  ARRA 
also allows States to revise the requirement for previous receipt of Medicaid.  The letter advises 
States of new ARRA requirements for reporting the average monthly enrollment and 
participation rates for TMA for adults and children and notes that the format, timing, and 
frequency of the reports will be specified at a later time.  Finally, the letter includes a draft State 
plan pre-print to assist States in submitting an amendment to revise their State plans to reflect the 
new TMA requirements. 
Section 5005  Extension of the Qualified Individual (QI) Program 
Section 5005 of ARRA extends the Qualified Individual (QI) program through December 2010.  
Section 5005 also provides for the following allocation amounts: 
  For the period from January 1, 2010, through September 30, 2010, the total allocation 
amount is $412,500,000.  
  For the period from October 1, 2010, through December 31, 2010, the total allocation 
amount is $150,000,000.  
Section 5006 - Protections for Indians under Medicaid and CHIP 
This provision directly affects Indian Tribes and, pursuant to the HHS Tribal Consultation 
policy, CMS will issue additional guidance after consultation with Tribes.  The provision is 
effective July 1, 2009, so we will be working in the next few months to issue guidance in a 
timely manner.  The following is a brief summary of the section: 
Subsection (a) prohibits premiums and cost-sharing for Indians who are provided services by 
Indian Health providers (including Urban Indian organizations) or through referral by contract 
health services.  Similarly, payments to Indian Health providers cannot be reduced by the amount 
of any enrollment fee, premium, or cost-sharing in Medicaid or CHIP. 
Subsection (b) requires that States must disregard property, including real property and 
improvements, held in trust or under supervision of the Secretary of the Interior, from resources 
when determining eligibility for Medicaid or CHIP.  Additionally, States must disregard 
ownership interests and usage rights in federally protected natural resources and items with 
unique cultural significance or that support maintaining traditional lifestyles according to tribal 
law or custom. 
Subsection (c) codifies sections of the Medicaid Manual instructions regarding protecting Indian 
property from estate recovery under Medicaid.  This section reinforces current policy.    Page 5 - State Medicaid Director 
Subsection (d) sets forth several provisions regarding managed care entities.  Managed care 
entities serving Indians that include Indian Health primary care providers are required to allow 
Indian members to choose the Indian health care provider as their primary care provider.  
Additionally, contracts with managed care entities must demonstrate that access to Indian health 
care providers is sufficient for Indian enrollees to receive services, and payment to Indian 
providers must be at a rate equal to non-Indian health care providers.  Managed care entities 
must make prompt payment to Indian providers consistent with section 1932(f) of the Act. 
Section 5006(d) also requires managed care entities to pay Indian federally qualified health 
centers (FQHCs) that are not participating providers at the same rate as a participating FQHC. 
Non-FQHC Indian Heath care providers under managed care must be paid by the managed care 
entity or the State, at a rate that is at least equal to what the provider would be paid under the 
State plan.  Lastly, Indian managed care entities may restrict enrollment to include only Indians 
in the same manner that Indian Health Programs (including the Indian Health Service) restrict 
enrollment to include only Indians. 
Finally, subsection (e) codifies and strengthens existing responsibilities for consultation by CMS 
and the States with Indian tribes, Indian health programs, and Urban Indian organizations, 
specifically clarifying the application of these responsibilities under the CHIP program. 
We look forward to working with you as you implement these provisions of ARRA. 
Sincerely, 
/s/ 
Cindy Mann 
Director 
Center for Medicaid and State Operations 
Enclosures 
cc: 
CMS Regional Administrators 
CMS Associate Regional Administrators 
Division of Medicaid and Children's Health 
Ann C. Kohler 
NASMD Executive Director 
American Public Human Services Association 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures  Page 6 - State Medicaid Director 
Matt Salo 
Director of Health Legislation 
National Governors Association 
Debra Miller 
Director for Health Policy 
Council of State Governments 
Barbara W. Levine 
Chief, Government Relations and Legal Affairs 
Association of State and Territorial Health Officials 
Christine Evans, MPH 
Director, Government Relations 
Association of State and Territorial Officials 
Alan R. Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy