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 #09-005 
ARRA #5 
 
August 19, 2009 
 
 
Dear State Medicaid Director: 
 
This letter is another in a series of State Medicaid Director correspondence that provides 
guidance on the implementation of the American Recovery and Reinvestment Act of 2009 (the 
Recovery Act), Public Law 111-5.  This letter provides guidance on the process for accessing the 
increased Federal Medical Assistance Percentage (FMAP), expenditures for which the increased 
FMAP is available, and the eligibility maintenance of effort (MOE) requirements under 
section 5001(f) of the Recovery Act.   
 
Section 5001 of the Recovery Act provides eligible States with an increased FMAP for 27 
months between October 1, 2008, and December 31, 2010.  Under section 5001(f), to access the 
additional funds associated with the increased FMAP, each State must ensure that the eligibility 
standards, methodologies, or procedures under its Medicaid State Plan, or under its Medicaid 
waiver or demonstration programs, are not more restrictive during this period than those in 
effect on July 1, 2008.  More restrictive eligibility policies would preclude the State from 
accessing the increased FMAP funds until the State had restored eligibility standards, 
methodologies, or procedures to those in effect on July 1, 2008.   Furthermore, this letter reminds 
States that, in order to retain Recovery Act funds already drawn, any known MOE violations 
must have been corrected by June 30, 2009.     
 
Background 
  
On February 17, 2009, the Recovery Act was signed into law.  The legislation authorizes an 
estimated $87 billion in fiscal relief for States in the form of a temporary increase in the funds 
that the Federal Government contributes toward Medicaid.  In an effort to be responsive to public 
inquiries, on March 25, 2009, the Centers for Medicare & Medicaid Services (CMS) released 
preliminary information through a Fact Sheet and paper addressing frequently asked questions.  
This letter provides additional guidance and clarification, and supersedes those prior issuances.  
 
Increased FMAP Grant Issuance 
 
States eligible for the increased FMAP will be able to access the additional funds on an ongoing 
basis.  At the beginning of each quarter, the estimated amount of additional funding for that 
quarter will be determined in accordance with the provisions of section 5001 of the Recovery 
Act.  The estimated additional funds will be determined by calculating the difference between   P age 2  State Medicaid Director 
   
the increased FMAP under the Recovery Act and the pre-Recovery FMAP, and then multiplying 
that difference by the estimates of appropriate expenditures submitted by each State.   
 
Initial funding related to the increased FMAPs has been made available to States through 
separate grant awards issued under the Payment Management System (PMS) in accounts 
established specifically for the increased FMAP funds.  Subsequent grant awards will be issued 
quarterly by the same process.  The CMS grant award letters include five attestations relating to 
the requirements of section 5001 of the Recovery Act.  The CMS grant letters direct that 
acceptance of the grant award and withdrawal of such funds from the PMS equates to an 
attestation by each State that the State is eligible for such funds, and that the expenditures for 
which the funding is claimed are appropriate and consistent with the requirements of section 
5001 of the Recovery Act. 
 
Required Passive Attestations Under the Grant Award 
 
In order to minimize the need for separate review, CMS included five requirements as 
attestations in each grant award letter to the States.  The grant award letter indicates that only 
after the State has conducted self-assessment and determined that it meets all the requirements 
under which the increased FMAP and associated funds are available, was it free to draw such 
funds.  This process is referred to as a passive attestation whereby each State confirms through 
its withdrawal of the funds that it meets all requirements.  This process obviated the need for a 
State to submit written confirmation that it met the requirements prior to receiving its funds; 
rather, the drawing of such funds represents the States attestation that it meets all the 
requirements.  The attestations are included as Enclosure A. 
 
Expenditures Eligible for Increased FMAP 
 
As indicated in the fourth attestation under the grant award, the State must ensure that claims for 
the increased FMAP include only those expenditures for which it is applicable.   Under section 
5001(e); the increased FMAP is applicable generally to title XIX, but is not applicable to certain 
enumerated expenditures.  The following list includes those expenditures and certain others to 
which the increased FMAP is inapplicable for other reasons: 
 
1.  Expenditures for disproportionate share hospital (DSH) payments; 
2.  Expenditures for payments made under title XXI; 
3.  Expenditures that are claimed based on the enhanced FMAP (described in section 
2105(b) of the Social Security Act); 
4.  Expenditures that are not paid based on the FMAP, such as family planning services; 
5.  Services provided through an Indian Health Service facility which are ineligible 
because such expenditures receive 100 percent FMAP, which is the FMAP ceiling 
level under section 5001(f)(5) of the Recovery Act; 
6.  Expenditures for medical assistance provided to individuals made eligible under a 
State plan or waiver with income standards (expressed as a percentage of the Federal 
poverty level (FPL)) higher than the income standards (as so expressed) for such 
eligibility as in effect on July 1, 2008; and   P age 3  State Medicaid Director 
   
7.  Expenditures for health care practitioner claims, or certain nursing home and hospital 
claims, that were received by the State during the periods in which the State is not in 
compliance with prompt payment standards. 
 
In general, CMS has interpreted these exclusions narrowly.  The increased FMAP is not 
available for expenditures for eligibility expansion populations added after July 1, 2008; to the 
extent that the expansion is due to higher income standards for eligibility groups for which the 
income standard is statutorily based on the FPL, including adding a new FPL-based eligibility 
group.  For example, if the State raised the income standard for an eligible group from 133 to 
150 percent of the FPL, expenditures for such individuals with income greater than 133 percent 
of the FPL would only be eligible for the regular FMAP.   
 
Since medically needy income standards are not statutorily based on the FPL; increases in those 
standards would be eligible for the increased FMAP.  Similarly, changes in the income standards 
under section 1931 of the Act would be eligible for the increased FMAP, since those standards 
are based on the prior levels under title IV-A. 
 
If a State can demonstrate that an increase in an income standard was enacted under State law 
prior to July 1, 2008, and not effective before that date, or that the change had been submitted to 
CMS as a State plan amendment or waiver request, but had not yet been approved before that 
date, such an increase would be eligible for increased FMAP.   
 
However, an increase in an income standard enacted under State law after July 1, 2008, or not 
submitted to CMS for approval until after July 1, 2008, and claims associated with those groups 
would not be eligible for increased FMAP.  For example: 
 
Not Eligible for Increased FMAP  Eligible for Increased FMAP 
-  Increases in an income level statutorily  -  Increases in an income level statutorily 
based on the FPL after June 30, 2008;  based on the FPL enacted under State law 
AND/OR,  prior to July 1, 2008, but not effective until 
-  Addition of a new eligibility group based on  after that date; OR, 
the FPL after June 30, 2008.  -  Increases in an income level statutorily 
based on the FPL included in a State plan 
amendment or waiver request under title 
XIX that was pending approval by CMS on 
July 1, 2008;  OR, 
-  Increase in income standards, or the 
addition of eligibility groups that are not 
expressed as a percentage of the poverty 
line, e.g. the medically needy (irrespective 
of date). 
 
The CMS intends to address the issues related to the prompt pay exclusion in separate guidance. 
 
 
   P age 4  State Medicaid Director 
   
Eligibility Maintenance of Effort (MOE) Requirements  
 
Under section 5001(f)(1) of the Recovery Act, a State is not eligible for the increased FMAP if it 
adopts eligibility standards, methodologies, or procedures, (referred to below as eligibility 
policies) under its State plan or any waiver, that are more restrictive than those in effect on   
July 1, 2008.   The first required passive attestation incorporated into the grant award concerns 
this eligibility MOE requirement.   A State should first determine whether it has changed its 
eligibility policies from those in effect on July 1, 2008.  In general, the statutory term in effect 
means the actual standards, methodologies, or procedures that States were utilizing on July 1, 
2008, to determine or redetermine eligibility for Medicaid under the State plan or through a 
waiver program, and which are consistent with Federal statute and regulations.  To the extent 
that a State has not changed its actual eligibility policies since July 1, 2008, there would be no 
eligibility MOE issue.   CMS will not consider a State to have changed its eligibility policies 
when the State amends outdated provisions in State guidance or even in the State plan when such 
amendments merely codify policies that were actually in effect on July 1, 2008, and are 
consistent with Federal law. 
 
If a State has changed its eligibility policies, the next question is whether those changed policies 
are more restrictive than those in effect on July 1, 2008.  In reviewing this issue, CMS will not 
consider as more restrictive changes in eligibility policies that were required to comply with 
Federal statutes, regulations, or provisions of a State plan, demonstration, or waiver program 
approved as of July 1, 2008.   The Recovery Act contains no language indicating that Congress 
intended to limit ongoing actions required to ensure compliance with program requirements.   
Furthermore, it is not plausible to require States to choose between the increased FMAP and 
potential disallowances for expenditures that were inconsistent with applicable Medicaid 
authorities.     
 
Apart from compliance-related changes, CMS would consider changes in State eligibility 
policies to be more restrictive if the changes result in determinations of ineligibility for 
individuals who would have been considered eligible as of July 1, 2008.  This includes changes 
that impose burdens on eligible beneficiaries that cause them to be determined ineligible.  For 
example, changes in the frequency of eligibility re-determinations (for example, from 12 months 
to 6 months) cause eligible individuals to lose coverage and would be considered more 
restrictive.  Similarly, increases in premiums or enrollment fees that are a condition for eligibility 
would be considered more restrictive.  Changes in section 1915(c) waiver eligibility to replace 
aggregate cost neutrality with individual cost neutrality or to eliminate occupied or funded 
waiver capacity would also be more restrictive.  More stringent institutional level of care 
assessments, which impact eligibility for individuals in institutional and section 1915(c) home 
and community based settings, are additional examples of changes resulting in more restrictive 
eligibility policies. 
 
More restrictive eligibility policies would also include more restrictive income or resource 
standards, disability criteria, or the elimination or reduction of liberal income and/or resource  
methodologies under section 1902(r)(2) of the Act that had been in effect as of July 1, 2008.  In 
addition, elimination of any eligibility group or subgroup that was included under the approved 
State plan or under an approved waiver as of July 1, 2008, would be viewed as more restrictive.    P age 5  State Medicaid Director 
   
For example, even if a medically needy group as a whole is still covered under the State plan, 
elimination of one or more categorical subgroups (e.g., the aged, or the disabled) from the group 
is a more restrictive eligibility policy. 
 
Similarly, elimination of any eligibility group or subgroup authorized pursuant to 42 CFR 
435.217 under a section 1915(c) waiver would be a more restrictive eligibility policy.  The same 
would be true for elimination of a group or subgroup of  individuals eligible under a title XIX 
demonstration project pursuant to section 1115 of the Act, including combination title XIX and 
title XXI demonstrations, except to the extent that the demonstration involved a separate title 
XXI program demonstration, to which title XXI rules apply. 
 
Importantly, reductions in waiver slots under section 1915(c) waivers  may be considered MOE 
issues because of the direct relationship between enrollment in a 1915(c) waiver and Medicaid 
eligibility for the individuals described in 42 CFR 435.217.  In particular, reductions in the 
maximum number of waiver slots in an approved waiver would only be consistent with the 
Recovery Act MOE requirements if the State can demonstrate that the number of waiver slots 
available is the higher of the number of waiver slots that were occupied as of July 1, 2008, or the 
number the State legislature actually funded as of that date.  Any such changes must be expressly 
identifiable in State law.  Funding may not be reduced to a level below that which was available 
on July 1, 2008. 
 
More restrictive eligibility policies would also include changes in eligibility procedures that are 
not reflected in an approved State plan or approved waiver document.  Therefore, CMS may not 
be aware of an MOE issue in a State unless either the State or other concerned parties alert CMS 
to the issue.  For this reason, each State must review its own eligibility policies to determine if 
there is a change, and if it is more restrictive.  CMS will continue to work with States to provide 
technical assistance to determine the necessary action to assure compliance with approved State 
plans, waiver programs and the Recovery Act requirements throughout the period ending on 
December 31, 2010.   
 
Program modifications that do not directly affect eligibility are not subject to the eligibility MOE 
requirements.  These modifications include changes to the post-eligibility application of patient 
income to the cost of institutional or other long-term care, modifications to provider payment 
rates, modifications to the benefit package that would eliminate optional benefits, or imposition 
or increase of co-payments or co-insurance with respect to a covered service.   
 
Reinstatement of Provisions Which Exclude the State from Receiving the Increased FMAP 
 
The increased FMAP is available to eligible States for a 27-month period between October 1, 
2008, and December 31, 2010.  As such, CMS will continue to work with States to determine 
initial and on-going eligibility for the increased FMAP.  States may regain eligibility for the 
increased FMAP effective back to October 1, 2008, if they reversed those Medicaid eligibility 
restrictions which made them ineligible for the increased FMAP on or before June 30, 2009. 
After June 30, 2009, however, the eligibility for the increased FMAP is only effective 
prospectively, with the first calendar quarter the State reverses the eligibility restriction(s).  
States should send written communication to their CMS Regional Office describing the   P age 6  State Medicaid Director 
   
identified eligibility restriction(s) and the steps the State will take to reverse such restriction(s).  
States must include an effective date for those reinstatements.  If State plan amendments, waiver 
amendments, or other official documents must be prepared and otherwise adjudicated in order to 
officially reinstate the previous policy, CMS will accept a letter indicating that the eligibility 
restriction(s) has in fact been reinstated, and the effective date(s) it was reinstated, as sufficient 
documentation to regain the States eligibility for the increased FMAP.  Conforming State 
plan(s), waiver(s), or other official documents must be submitted by the State within a reasonable 
time period. 
  
Included with this letter is also an enclosure which provides some examples of what would 
constitute a restriction to eligibility standards, methodologies, or procedures.   
 
If you have questions regarding this guidance, please contact Mr. Bill Lasowski, Deputy 
Director, Center for Medicaid and State Operations who may be reached at (410) 786-2003. 
 
Sincerely, 
 
/s/ 
 
Cindy Mann 
Director 
 
Enclosures 
 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
Division of Medicaid and Childrens Health 
 
Ann C. Kohler 
NASMD Executive Director 
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   P age 7  State Medicaid Director 
   
Christine Evans, MPH 
Director, Government Relations 
Association of State and Territorial Health Officials 
 
Alan R. Weil, J.D., M.P.P 
Executive Director 
National Academy for State Health Policy