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 
 
 
  SMDL# 10-005 
  PPACA # 1 
 
April 9, 2010 
 
Re:  New Option for Coverage of Individuals under Medicaid 
 
Dear State Health Official: 
Dear State Medicaid Director: 
 
This letter is one of a series intended to provide guidance on the implementation of the health 
insurance reform legislation, the Patient Protection and Affordable Care Act (the Affordable 
Care Act); P. L. 111-148, as amended by the Health Care and Education Reconciliation Act of 
2010; P. L. 111-152.  Specifically, this letter provides initial guidance on Section 2001 of the 
Affordable Care Act:  Medicaid Coverage for the Lowest Income Populations, which 
establishes a new eligibility group and the option for States to begin providing medical assistance 
to individuals eligible under this new group as of April 1, 2010.  Under the law, for the first time 
since the Medicaid program was established, States will receive Federal Medicaid payments to 
provide coverage for the lowest income adults in their States, without regard to disability, 
parental status or most other categorical limitations, under their State Medicaid plans. 
 
The New Eligibility Group 
 
Section 2001(a)(1) (as amended by section 10201) of the Affordable Care Act, establishes a new 
eligibility group that all States participating in Medicaid must cover as of January 2014.  As 
discussed below, section 2001(a)(4) adds a new subsection (k)(2) of section 1902 of the Social 
Security Act (the Act), which permits States to cover this group of individuals at State option, or 
to phase-in coverage of the group based on income, beginning April 1, 2010.   
 
Specifically, section 2001(a)(1) establishes a new eligibility group (VIII) under section 
1902(a)(10)(A)(i) of the Act.  The new group fills in the gaps in existing Medicaid eligibility by 
making eligible very-low income individuals who are not otherwise eligible under mandatory 
eligibility categories.  Thus, the law describes the individuals eligible under the new group as 
those who are not: 
  Age 65 or older; 
  Pregnant; 
  Entitled to or enrolled in benefits under Medicare Part A; 
  Enrolled under Medicare Part B; or  Page 2  State Health Official and State Medicaid Director 
  Described in any of the other mandatory groups in the statute (subclauses (I)  (VII) of 
section 1902(a)(10)(A)(i) of the Act), such as certain parents, children, or people eligible 
based on their receipt of benefits under the Supplemental Security Income (SSI) program. 
 
The Centers for Medicare & Medicaid Services (CMS) will be issuing additional guidance on 
other provisions contained in Section 2001 of the Affordable Care Act at a later date. 
 
State Option Until 2014 
 
Under section 1902(k)(2) of the Act, until 2014, States may elect to phase-in coverage for this 
new eligibility group at any time, effective April 1, 2010.  This means that States do not have to 
wait until January 2014 to cover adults they have previously had no authority to cover under a 
State plan, including adults under age 65 who are neither disabled, pregnant, nor living with 
dependent children and who do not have other special circumstances.  Depending on the 
categories and income levels a State now covers and the income level a State decides to set for 
the new group under the 1902(k)(2) option, the new group also could include other low-income 
adults, including parents and individuals with disabilities who do not receive SSI.  
 
For example, if a State has not otherwise expanded coverage for parents or people with 
disabilities up to an income level of 100 percent of the Federal poverty level (FPL), and it adopts 
the 1902(k)(2) option up to that income level, the new group would include adults not eligible 
under other categories, including some parents and people with disabilities.  By contrast, if a 
State already covers parents and people with disabilities with incomes up to 100 percent of the 
FPL and implements the 1902(k)(2) option up to that income level, the individuals eligible under 
the new option generally would be limited to the childless adults ineligible under the other 
categories. 
 
Federal Matching of State Expenditures for New State Option 
 
In calendar year 2014, when the new eligibility group described at section 
1902(a)(10)(a)(i)(VIII) is mandatory for all States participating in Medicaid, States will receive 
an increased matching rate for certain individuals in this new eligibility group (CMS will issue 
separate guidance on the matching rate provisions in the new health insurance reform 
legislation).  Taking up the optional early expansion does not preclude or in any way affect 
receipt of the increased matching rate (based on the requirements in effect when this group 
becomes mandatory in 2014).  Until January 2014, States that adopt the new section 1902(k)(2) 
coverage option will receive Federal matching payments at their regular Federal medical 
assistance percentage (FMAP).  The increased FMAP determined under the American Recovery 
and Reinvestment Act of 2009 is not available for this new optional group.   
 
Financial Eligibility Under the New Option 
 
Because the option provided under section 1902(k)(2) allows States to phase in the extension of 
eligibility based on income, States can set the income eligibility standard for the new group at 
any level up to 133 percent of the FPL, applicable to a family of the size involved.  A State 
cannot cover higher income people within this new group before covering lower income people 
within the group.  There is no asset test for this new eligibility group.  Page 3  State Health Official and State Medicaid Director 
 
Eventually, most groups covered in the Medicaid program will have their income eligibility 
calculated using a Modified Adjusted Gross Income (MAGI) -based method.  However, that 
method for calculating income in the Medicaid program will not be required until 2014.  In the 
interim, section 1902 of the Act requires States to use methods of determining income that are 
reasonable, consistent with the objectives of the Medicaid program, simple to administer, and in 
the best interests of the beneficiary.  For purposes of implementing the section 1902(k)(2) option, 
we believe the SSI programs rules (which are currently used in Medicaid for determining 
income eligibility for people with disabilities) meet these criteria.  Like the individuals covered 
under the SSI-related Medicaid eligibility category, many of the individuals eligible under the 
new group will be adults without children and many will have disabilities or chronic illnesses.  
The SSI program provides for a number of income disregards specifically applicable to persons 
with disabilities that are not available under other program methodologies.  States may also elect 
to use less restrictive income methodologies than are used under SSI.  Any less restrictive 
methodology should be available to all members of the group. 
 
While the rules of the SSI program are an example of a methodology that we believe meets the 
requirements for approval of a State plan amendment implementing the section 1902(k)(2) 
option to cover the new group, this does not preclude States from submitting State plan 
amendments (SPAs) describing other methodologies they believe also meet those requirements.  
We encourage States considering the use of other methodologies to discuss them with CMS 
before actually submitting a SPA. 
 
Benefits Available to Individuals in the New Group 
 
Under PPACA, the medical assistance provided to an individual in the new eligibility group 
must consist of benchmark coverage described in section 1937(b)(1) of the Act or benchmark-
equivalent coverage described in section 1937(b)(2) (as amended by section 2001(c) of the 
Affordable Care Act) unless the individual is exempt from mandatory enrollment in a benchmark 
benefit plan.  Benchmark rules apply to the new group whether or not the State has otherwise 
elected the option to provide benchmark benefit coverage under its State plan.  Individuals in the 
new group who are exempt from mandatory enrollment in a benchmark benefit plan must receive 
medical assistance under the States currently approved plan.  Others must be provided with 
benchmark or benchmark-equivalent coverage, including Secretary-approved benchmark 
coverage described in section 1937(b)(1)(D).  Consistent with the provisions of section 1937, 
children covered under the new group must receive all Early and Periodic Screening, Diagnostic 
and Treatment services. 
Other Applicable Rules 
 
All rules applicable under the Medicaid program in general apply to this new eligibility group, 
including rules relating to cost sharing and immigration status.  The Affordable Care Act also 
includes an additional requirement applicable to this new group, which is that if a parent of a 
child under age 19 (or such higher age as the State may elect) meets the requirements for 
eligibility under the new group, the parent may not be enrolled in that group unless the child is 
also enrolled under the State plan, under a waiver of the plan, or in other health insurance 
coverage.  For purposes of this requirement, parent includes a caretaker relative as defined for 
purposes of section 1931 of the Social Security Act.  Page 4  State Health Official and State Medicaid Director 
 
Submission of State Plan Amendments 
 
To implement the 1902(k)(2) option to cover this new eligibility group, States should submit an 
amendment to their State Medicaid plans.  We are ready to work with States interested in 
adopting this new option and will be issuing a draft SPA preprint template in the near future.  In 
the meantime, States wishing to elect this new option effective on April 1, 2010 should submit a 
SPA no later than June 30, 2010.  States that wish to have an effective date after April 1, 2010 
are not required to meet the June 30, 2010 deadline.   
 
We look forward to our continuing work together as we implement this important legislation. 
 
Sincerely, 
 
/s/ 
 
Cindy Mann 
Director 
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 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Debra Miller 
Director for Health Policy 
Council of State Governments 
 
Christine Evans, M.P.H. 
Director, Government Relations 
Association of State and Territorial Health Officials 
 
Alan Weil, J.D., M.P.P. 
Executive Director 
National Academy for State Health Policy