July 20, 2015 
 
Dear Medicaid, Childrens Health Insurance Program, and Health and Human Services 
Directors, and State Marketplace CEOs: 
 
On August 10, 2011, we announced a time-limited, specific exception to the cost allocation 
requirements set forth in Office of Management and Budget (OMB) Circular A-87 (Section 
C.3) and Section 200.405 of the superseding Uniform Administrative Requirements, Cost 
Principles, and Audit Requirements for Federal Awards (2 CFR 200 issued December 19, 
2014).  These provisions generally require the costs associated with building shared state-
based information technology systems to be allocated across all benefitting programs. The 
exception reflected the Administrations focus on streamlining enrollment in health and human 
services programs while leveraging funding efficiencies at the state-level.  The original 
timeline allowed human services programs to benefit from investments in the design and 
development of state eligibility-determination systems for state-operated Marketplaces, 
Medicaid, and the Childrens Health Insurance Program (CHIP), through December 31, 2015.  
This letter provides a one-time extension of that timeline for an additional 3 years, through 
December 31, 2018, and provides additional guidance on how states may take advantage of the 
exception and the extended timeframe to leverage these investments to better serve consumers 
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 
stakeholders as we work together to implement our shared vision of interoperable, integrated 
and consumer-focused health and human services systems. 
 
The underlying premise for the waiver remains the same: to maintain the progress states have 
made, and to promote further integration.  This will enable states experiencing unanticipated 
delays with the development of the Medicaid Modified Adjusted Gross Income (MAGI) 
functionality in their eligibility systems, procurement challenges, and other unforeseen barriers 
to complete that work and then effectively use the waiver extension to streamline their eligibility 
systems, improve access to health and human service programs, and maximize efficiency.   
 
This extension of the exception to certain OMB cost allocation requirements, along with the 
proposed indefinite extension of enhanced Federal funding for Medicaid systems, will enable 
states to fund the initial development costs needed to retire their legacy eligibility determination 
systems and integrate their functionalities into improved systems.  Moreover, this extension will 
provide states more time to develop, refine, or test integrated systems to fully comply with 
Affordable Care Act functionalities. 
 
Please refer to the January 23, 2012, Tri-Agency letter for requirements and additional details on 
considerations for using the exception and suggested system functionalities that can be integrated 
(http://www.medicaid.gov/federal-policy-guidance/downloads/smd-01-23-12.pdf).  
  Page 2  Additional Guidance to States on the OMB Circular A-87 Cost Allocation Exception 
Clarifying States Integration Activities 
 
The extended timeline enables states to support optimal system integration between programs 
available to eligible consumers. These programs, by working together, acknowledge the social 
determinants of health and contribute to national health and wellness goals.  In light of the 
additional time available under the exception, states are encouraged to reconsider and revise 
their plans to pursue additional progress on system integration, beyond their original plans. 
States should ensure that revised incoming Advanced Planning Documents (APD)  include a 
detailed narrative, identifying the specific programs that will benefit from the unified system, 
the types and level of integration proposed, and a schedule for integration with milestones. This 
will ensure that HHS and USDA have the most current catalog of states activities and timing of 
implementation.  In addition, as states refresh their system integration plans, the U.S. Digital 
Services playbook is a valuable resource to consider for best practices in IT development: 
https://playbook.cio.gov/.   
 
Because each states system solution may vary, states interested in taking advantage of the 
opportunities available 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/or the Food and Nutrition Service (FNS), 
which are working together to ensure a close level of coordination.   
 
Technical Assistance to States 
In order to accelerate states efforts to achieve greater system integration, HHS and USDA are 
working to provide additional resources to offer timely technical assistance to states. 
Specifically, we are now leveraging a private collaborative workspace, which has supported 
states Medicaid and Marketplace eligibility efforts, to also serve state health and human 
services programs integration efforts.  This workspace, called the Collaborative Application 
Lifecycle Tool (CALT) now has a dedicated Health and Human Services Integration 
Community, and will allow states to share APDs, acquisition documents, and information 
technology (IT) artifacts that could serve as models and support their reuse.  We are also 
devoting additional contractual resources to work with states on their conceptual designs, and 
to identify opportunities for collaboration and reuse between states.  States should expect to 
hear shortly from their respective HHS and USDA system leads about gaining access to CALT 
and the new technical assistance resources.  It is our goal that these resources will facilitate 
more successful and efficient IT integration between Medicaid and human services programs, 
ultimately benefiting the beneficiaries that we serve.  
 
Advance Planning Document Process 
 
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 of Administration 
that acts as the clearinghouse for all HHS- related APDs that include two or more HHS 
programs.  If a state only intends to request funding for an eligibility system that provides 
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.  Page 3  Additional Guidance to States on the OMB Circular A-87 Cost Allocation Exception 
 
Please refer questions to the federal analyst responsible for your program area.   
Sincerely, 
/s/  /s/ 
 
Victoria Wachino  Kevin Concannon 
Director  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/ 
 
Mark Greenberg  Kevin Counihan 
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