[Federal Register Volume 66, Number 122 (Monday, June 25, 2001)]
[Rules and Regulations]
[Pages 33810-33824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15910]



[[Page 33809]]

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Part IV





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Parts 431, 433, et al.



State Child Health; Revisions to the Regulations Implementing the State 
Children's Health Insurance Program; Final Rule

Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 431, 433, 435, 436, and 457

[HCFA-2006-IFC]
RIN 0938-AL00


State Child Health; Revisions to the Regulations Implementing the 
State Children's Health Insurance Program

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Interim final rule with comment period; revisions, delay of 
effective date, and technical amendments to final rule.

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SUMMARY: Title XXI authorizes the State Children's Health Insurance 
Program (SCHIP) to assist State efforts to initiate and expand the 
provision of child health assistance to uninsured, low-income children. 
On January 11, 2001 we published a final rule in the Federal Register 
to implement SCHIP that has not gone into effect. This interim final 
rule further delays the effective date, revises certain provisions and 
solicits public comment, and makes technical corrections and 
clarifications to the January 2001 final rule based on further review 
of the comments received and applicable law. Only the provisions set 
forth in this document have changed. All other provisions set forth in 
the January 2001 final rule will be implemented without change.

DATES: Effective Date: The effective date of the January 2001 rule (66 
FR 2490), delayed on February 26, 2001 (66 FR 11547) and on June 11, 
2001 (66 FR 31178) until June 25, 2001, is delayed for an additional 60 
days, and will be effective, as amended by this rule, on August 24, 
2001.
    Comment date: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on July 
25, 2001.
    Compliance dates: To the extent contract changes are necessary, 
States will not be found out of compliance until the next contract 
cycle. By ``contract cycles'', we mean the earlier of the date of the 
original period of the existing contract, or the date of any extension 
or modification that would change the term of the contract. To the 
extent legislative changes are necessary, States will not be found out 
of compliance until the conclusion of the next legislative cycle 
following the effective date of the rule.

ADDRESSES: In commenting, please refer to file code HCFA-2006-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Mail written comments (one original and three copies) to the 
following address only: Health Care Financing Administration, 
Department of Health and Human Services, Attention: HCFA-2006-IFC, P.O. 
Box 8016, Baltimore, MD 21244-1850.
    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and three copies) to one of the following 
addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-16-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Regina Fletcher, (410) 786-3293;

Diona Kristian for subpart A, State plan, (410) 786-3283;
Maurice Gagnon for subpart C, Eligibility, (410) 786-0619;
Regina Fletcher for subpart D, Benefits, (410) 786-3293;
Dana Pryor for subpart E, Cost sharing, (410) 786-1304;
Kathleen Farrell for subpart G, Strategic planning,(410) 786-1236;
Maurice Gagnon for subpart I, Program integrity (410) 786-0619;
Terese Klitenic for subpart J, Allowable waivers, (410) 786-5942; and
Christina Moylan for subpart K, Applicant and enrollee protections 
(410) 786-6102.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Health Care Financing Administration, 7500 Security 
Boulevard, Baltimore, Maryland 21244, Monday through Friday of each 
week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public 
comments, call telephone number: (410) 786-7195.
    To order copies of the Federal Register containing this document, 
send your request to: New Orders, Superintendent of Documents, P.O. Box 
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requested and enclose a check or money order payable to the 
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and expiration date. Credit card orders can also be placed by calling 
the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The 
cost for each copy is $9. As an alternative, you can view and photocopy 
the Federal Register document at most libraries designated as Federal 
Depository Libraries and at many other public and academic libraries 
throughout the country that receive the Federal Register. This Federal 
Register document is also available from the Federal Register online 
database through GPO access, a service of the U.S. Government Printing 
Office. The Website address is http://www.access.gpo.gov/nara/index.html.

I. Background

    Section 490l of the BBA, Public Law 105-33, as amended by Public 
Law 105-100, added title XXI to the Act. Title XXI authorizes the State 
Children's Health Insurance Program (SCHIP) to assist State efforts to 
initiate and expand the provision of child health assistance to 
uninsured, low-income children. Under title XXI, States may provide 
child health assistance primarily for obtaining health benefits 
coverage through (1) a separate child health program that meets the 
requirements specified under section 2103 of the Act; (2) expanding 
eligibility for benefits under the State's Medicaid plan under title 
XIX of the Act; or (3) a combination of the two approaches. To be 
eligible for funds under this program, States must submit a State child 
health plan (State plan), which must be approved by the Secretary.
    SCHIP is jointly financed by the Federal and State governments and 
is administered by the States. Within broad Federal guidelines, each 
State determines the design of its program, eligibility groups, benefit 
packages, payment levels for coverage, and administrative and operating 
procedures. SCHIP provides a capped amount of funds to States on a 
matching basis for Federal fiscal years (FY) 1998 through 2007. Federal 
payments under title XXI to States are based on State expenditures 
under approved plans effective on or after October 1, 1997.
    On January 11, 2001, we published a final rule to implement SCHIP, 
which has not gone into effect (66 FR 2490). That final rule contained 
provisions regarding State plan requirements and plan administration, 
coverage and benefits, eligibility and enrollment, enrollee financial 
responsibility,

[[Page 33811]]

strategic planning, substitution of coverage, program integrity, 
waivers, and applicant and enrollee protections. The January 2001 final 
rule also included provisions to expand State options for coverage of 
children under the Medicaid program. On February 26, 2001, we delayed 
the effective date of the January 11, 2001 final rule for 60 days (66 
FR 11547). On June 11, 2001, we delayed the effective date an 
additional 14 days, until June 25, 2001. We are further delaying the 
effective date of the January 11, 2001 final rule so that those 
provisions which were not revised by this interim final rule, as well 
as those which have been revised by this interim final rule (which are 
discussed in detail below), will all become effective on August 24, 
2001.
    After further Departmental review of the January 2001 final rule, 
and additional consideration of the public comments received on the 
November 8, 1999 proposed rule (64 FR 60882), we have decided to make 
revisions to certain provisions set forth in the January 2001 final 
rule. We note that only the provisions specified in this document have 
changed. All other provisions set forth in the January 2001 final rule 
will be implemented without change.
    We note that we previously obtained public comments on the issues 
set forth in this document. We welcome parties to submit further 
comments on the issues presented in this interim final rule with 
comment period. To the extent that it is necessary to address any new 
concerns that are raised, we will do so.

II. Summary of Changes to the January 11, 2001 Final Rule

    We received 109 timely comments on the November 8, 1999 proposed 
rule, which we responded to in the January 2001 final rule. As stated 
above, after further review of the public comments we are revising our 
responses to some of the comments set forth in the January 2001 final 
rule and revising the corresponding regulatory text. In addition, in 
this interim final rule, we are making certain technical changes to 
correct errors in the January 2001 final rule. In the following 
discussion we summarize the relevant public comments and present our 
revised responses.

A. State Plan Requirements: Eligibility, Screening, and Enrollment

1. Eligibility Standards (Sec. 457.320)
    In the January 2001 final rule, Sec. 457.320(b)(4) provided that a 
State may not require that any individual provide a social security 
number (SSN), including the SSN of the applicant child or that of a 
family member whose income or resources might be used in making the 
child's eligibility determination.
    Comment: We received a large number of comments related to 
obtaining social security numbers (SSNs) during the application 
process. Many commenters specifically supported the prohibition against 
requiring the SSN in separate child health programs, while others 
recommended that SSNs be required for applicants as long as there is a 
Medicaid screen and enroll requirement. Some commenters indicated that 
the prohibition against requiring SSNs for a separate child health 
program while requiring it for Medicaid will cause referral, tracking 
and coordination problems; handicap enrollment in States using a joint 
application; make it difficult to implement the screen and enroll 
provision; reinforce stereotypes; and prevent automatic income 
verification in States that have reduced the documentation 
requirements. Another added that this prohibition would impede efforts 
to identify children with access to State health benefits. (66 FR 2541)
    Response: We previously responded that the requirements and 
prohibitions related to the use of a social security number were 
statutory, based upon our interpretation of language in the Privacy 
Act. The Privacy Act makes it unlawful for States to deny benefits to 
an individual based upon that individual's failure to disclose his or 
her social security number, unless such disclosure is required by 
Federal law or was part of a Federal, State or local system of records 
in operation before January 1, 1975. Additionally, we responded that 
section 1137(a)(1) of the Act requires States to condition eligibility 
for specific benefit programs, including Medicaid, upon an applicant 
(and only the applicant) furnishing his or her SSN. Because SCHIP was 
not one of the programs identified in section 1137 of the Act, and 
title XXI does not require applicants to disclose their SSNs, we 
concluded that States were prohibited under the Privacy Act from 
requiring applicants to do so.
    In our previous response, however, we did not discuss subsequent 
revisions to the Privacy Act that provided exceptions for ``general 
public assistance programs'' because we had interpreted that language 
to refer to only State-only welfare programs. Further investigation of 
the conference reports discussing the modifications made by Congress to 
the Privacy Act, namely the exceptions for ``general public assistance 
programs,'' revealed that Congress had a broader intent than referring 
to State-only welfare programs. We now interpret that term in a broader 
sense, and we believe SCHIP is a program that qualifies as an exception 
under the Privacy Act. We have been aware through our dialogue with the 
States that this provision inhibited the screen and enroll process, 
verification of private insurance, payment of premium assistance to an 
employee, and the evaluation capabilities for many States. The 
requirement also created significant administrative difficulties for 
those States that use joint applications with Medicaid.
    Therefore, we are revising the final regulation to provide States 
with the option to require a SSN of applicants for SCHIP. However, 
similar to the requirements for Medicaid, only the SSN of the 
individual who is applying for benefits can be required as a condition 
of eligibility. States may not require other individuals not applying 
for coverage, including parents or other family members, to provide 
SSNs as a condition of the child's eligibility for either a Medicaid 
expansion program or a separate child health program. Section 
457.320(b)(4) has been revised accordingly. We specifically solicit 
comments on the impact that this provision may have on immigrant 
populations.
    Because we are now permitting States to require a social security 
number for each individual who is requesting services, we have also 
added a new provision at Sec. 457.340(b) to assure necessary 
protections for use of a social security number consistent with the 
requirements currently set forth in the Medicaid regulations at 
Sec. 435.910. This provision requires States to disclose the purpose 
for obtaining the social security number and to assist the applicant in 
obtaining or verifying an existing social security number. Section 
435.910 also prohibits the State from denying or delaying services to 
an otherwise eligible individual pending issuance or verification of 
the individual's social security number. This provision makes the 
procedures and protections for a separate child health program 
consistent with procedures and protections under Medicaid. Consistency 
between the programs will facilitate the application process, 
particularly in States that use a joint application. We also note that 
in accordance with Sec. 457.1110(b) of the January 2001 final rule, 
States are required to comply with regulations set forth at subpart F 
of part 431. These requirements specify that the State must provide 
safeguards that restrict the use or disclosure of information 
concerning

[[Page 33812]]

applicants and recipients to purposes directly connected with 
administration of the plan.
2. Eligibility Screening and Facilitation of Medicaid Enrollment 
(Sec. 457.350)
    Paragraphs (e) and (g) of Sec. 457.350 of the January 2001 final 
rule required States to provide SCHIP applicants with written 
information on the Medicaid program, but did not indicate the degree of 
flexibility as to the format and timing of that information.
    Comment: Several commenters expressed their concern about the 
requirements that certain information about Medicaid should be provided 
to families if a State uses a screening procedure other than a full 
determination of Medicaid eligibility (66 FR 2547). Commenters 
indicated that they were concerned that this information could be 
confusing to families whose children were found eligible for a separate 
child health program. Commenters were also concerned that providing 
this information would slow down the eligibility determination process.
    Response: We previously responded by providing clarifying language 
in Sec. 457.350(e) and (g) regarding a State's responsibility to 
facilitate enrollment in Medicaid and to assist families in making 
informed application decisions. In these sections, we clarified that 
States must inform the family, in writing, that based on a limited 
review, the child does not appear to be eligible for Medicaid. We also 
required that a State provide certain information about the State's 
Medicaid program to enable a family to make an informed decision about 
applying for Medicaid or completing the Medicaid application process. 
These materials are to be provided in a simple and straightforward 
manner that can be understood by the average applicant and that meets 
all applicable civil rights requirements.
    Upon further consideration of these public comments, we have 
decided to provide additional clarification and flexibility for States 
in meeting this requirement. We have added Secs. 457.350(e)(4) and 
457.350(g)(3) to reflect that the written format and timing of 
information regarding Medicaid eligibility, benefits, and the 
application process will be determined by the State. However, States 
will still be required to provide families with information about 
Medicaid eligibility, benefits, and the application process. The State 
must provide the information when the child is found potentially 
ineligible for Medicaid through a limited eligibility screening and 
when the child is found potentially eligible for Medicaid as described 
in Sec. 457.350(e) and (g). These new revisions clarify that the 
required information may be in the form of handouts, brochures, or 
other written material provided during the application process. This 
approach may help to avoid lengthy, complex eligibility notices that 
are often confusing to families. As previously noted in the preamble, 
we are working to identify appropriate notice language and best 
practices and will disseminate this material to States (66 FR 2548). We 
note that, as discussed in detail below in section II.A.3. of this 
document, we have removed Sec. 457.350(f)(5)(iii).
3. Presumptive Eligibility Sec. 457.355
    In the January 2001 final rule, we included Sec. 457.355 regarding 
presumptive eligibility under a separate child health program as 
authorized under section 803 of BIPA. The BIPA had been enacted less 
than a month before the publication of the January 2001 final rule. The 
revisions to this section are technical changes to accurately reflect 
BIPA as we now understand it. These changes assure that the BIPA 
provision authorizing presumptive eligibility under a separate child 
health program is effectively and efficiently implemented.
    Comment: We received one comment urging HCFA to include information 
about presumptive eligibility under a separate child health program in 
the preamble to the regulation that implemented the SCHIP financial 
provisions (65 FR 33616). Another urged HCFA to encourage States to 
provide presumptive eligibility for children as this is particularly 
important to children experiencing a mental health crisis (66 FR 2533).
    Response: In our previous response, we stated that States were 
given explicit authority to implement a presumptive eligibility 
procedure under its separate child health program with the enactment of 
the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 
106-554). Under section 803 of BIPA, States were given the option to 
establish a presumptive eligibility procedure and to determine which 
entities must determine presumptive eligibility, subject to the 
approval of the Secretary.
    Under the presumptive eligibility established under Medicaid and 
carried over to SCHIP under the BIPA legislation, a family has until 
the end of the month following the month in which the presumptive 
eligibility determination is made to submit an application for the 
separate child health program (or the presumptive eligibility 
application may serve as the application for the separate child health 
program, at State option). If an application is filed, the presumptive 
eligibility period continues until the State makes a determination of 
eligibility under the separate child health program (subject to the 
Medicaid screening requirements). In accordance with Sec. 457.355, if a 
child enrolled in a separate child health program on a presumptive 
basis is later determined to have been eligible for the separate child 
health program, the costs for that child during the presumptive 
eligibility period will be considered expenditures for child health 
assistance for targeted low-income children and subject to the enhanced 
FMAP. If the child is found to have been Medicaid-eligible during the 
period of presumptive eligibility, the costs for the child during the 
presumptive eligibility period can be considered Medicaid program 
expenditures, subject to the appropriate Medicaid FMAP (the enhanced 
match rate or the regular match rate, depending on whether the child is 
an optional targeted low-income child).
    We further stated that BIPA authorizes presumptive eligibility 
under separate child health programs in accordance with section 1920A 
of the Act, and the statute allows health coverage expenditures for 
children during the presumptive eligibility period to be treated as 
health coverage for targeted low-income children when the child is 
ultimately found not to be eligible for either the separate child 
health program or Medicaid, as long as the State implements presumptive 
eligibility in accordance with section 1920A and Sec. 435.1101. This 
policy preserves State flexibility to design presumptive eligibility 
procedures and allows States that adopt the presumptive eligibility 
option in accordance with Sec. 435.1101 to no longer be constrained by 
the 10 percent cap.
    Upon further consideration and analysis of BIPA, we are correcting 
our previous analysis with respect to expenditures for a child who is 
found to have been Medicaid-eligible during a period of presumptive 
eligibility. Our analysis now concludes that the title XXI enhanced 
FMAP rate is available for services provided to a child during a period 
of presumptive eligibility implemented in accordance with section 1920A 
and Sec. 435.1102. Since Medicaid presumptive eligibility is paid at 
the FMAP rate generally available in Medicaid, we believe SCHIP 
presumptive eligibility should be paid at the rate generally available 
under Title XXI, the enhanced FMAP rate. The expenditures for this 
period of presumptive eligibility will be

[[Page 33813]]

considered child health assistance that is not subject to the 10 
percent limit on outreach and health services initiatives, regardless 
of whether the child is ultimately determined eligible for the separate 
child health program, eligible for Medicaid, or ineligible for both 
programs. SCHIP presumptive eligibility is not one of the listed 
categories of expenditures limited by section 2105(c)(2)(A), as amended 
by BIPA. Accordingly, we have revised Sec. 457.355, ``Expenditures for 
coverage during a period of presumptive eligibility'' to indicate that 
these expenditures will be considered as child health assistance when 
implemented in accordance with Sec. 435.1102. States that adopt 
presumptive eligibility in both their separate child health program and 
Medicaid expansion program should presumptively enroll children into 
the appropriate program based on their family income under the highest 
applicable income standard for Medicaid or the separate child health 
program in order to avoid the need to move children between programs 
when a final eligibility determination is made.
    Comment: Two commenters recommended that HCFA encourage States that 
have separate child health programs to provide newborn infants the same 
eligibility protections granted under Medicaid. Another recommended 
that HCFA allow pre-enrollment of newborns or automatic enrollment of 
newborns of pregnant teens enrolled in a separate child health program 
(66 FR 2541).
    Response: We previously responded that the statute does not provide 
for automatic and continuous eligibility for infants under a separate 
child health program but suggested using ``presumptive eligibility'' to 
enroll children in a separate child health program pending completion 
of the application process as a means to address this issue. We stated 
that, if the infant is ultimately found not to be eligible for 
Medicaid, costs of services provided during the period of presumptive 
eligibility may be treated as health coverage for targeted low-income 
children that is not subject to the 10 percent cap. This would apply 
whether or not the child is ultimately found eligible for the separate 
child health program, as long as the State implements presumptive 
eligibility in accordance with section 1920A of the Act and 
Sec. 435.1101.
    As a result of our review of the previous response and section 803 
of BIPA, we clarify here that when a newborn is enrolled in a separate 
child health program pending a formal determination of eligibility for 
Medicaid or SCHIP, the costs for the presumptive eligibility period are 
considered child health assistance. These costs are not subject to the 
10 percent cap on administration and health services initiatives, as 
long as presumptive eligibility is implemented in accordance with 
Sec. 435.1102.
    Comment: A few commenters indicated that the regulations should 
clarify that a child can be enrolled in a separate child health program 
while undertaking the full Medicaid application process. Other 
commenters recommended enrolling a child in a separate child health 
program for 45 days to allow processing of the Medicaid application (66 
FR 2548).
    Response: In our previous response to these comments, we stated 
that a State has the option to provisionally enroll or retain current 
enrollment of a child who has been found potentially eligible for 
Medicaid in a separate child health program, for a limited period of 
time, as specified by the State, pending a final eligibility decision. 
We stated, however, that a child cannot be ``eligible'' for the 
separate program unless a Medicaid application is completed and a 
determination made that the child is not eligible for Medicaid.
    In that previous response, we indicated that BIPA permits health 
coverage expenditures for children during the presumptive eligibility 
period to be treated as health coverage for targeted low-income 
children whether or not the child is ultimately found eligible for the 
separate child health program, as long as the State implements 
presumptive eligibility in accordance with section 1920A and 
Sec. 435.1101. We stated that, in that circumstance, the State would no 
longer be constrained by the 10 percent cap.
    As a result of our review of the previous response and section 803 
of BIPA, we clarify here that a child may be provisionally enrolled or 
retain current eligibility in a separate program, for a limited period 
of time, pending a final eligibility determination for Medicaid or 
SCHIP. When implementing presumptive eligibility consistent with 
Sec. 435.1102, the presumptive eligibility period would begin on the 
date that a qualified entity determines that the child has family 
income below the applicable income level and end on the day a Medicaid 
or separate child health program eligibility determination is made, or, 
if an application is not filed, the last day of the month following the 
date presumptive eligibility began. The costs are considered child 
health assistance and are not subject to the 10 percent cap on 
administration and health services initiatives, as long as presumptive 
eligibility is implemented in accordance with Sec. 435.1102.
    Comment: Many commenters were concerned generally about families 
``falling through the cracks'' because of the back and forth between 
separate child health programs and Medicaid or going without any health 
care for a period of time because of the process requirements. A 
significant number suggested that the regulation provide that a State 
cannot require a child to reapply for a separate child health program 
if the child is screened potentially eligible for Medicaid, but later 
determined ineligible for Medicaid. Most suggested that the separate 
child health program application should be suspended or provisionally 
denied when a child is found to be potentially eligible for Medicaid, 
pending a final Medicaid eligibility determination (66 FR 2549).
    Response: We previously responded, in part, by clarifying 
Sec. 457.350(f)(1) to indicate that a State may suspend, deny or 
provisionally deny the separate child health application of a child 
screened potentially eligible for Medicaid. Putting the application 
into suspense or provisionally denying an application would preserve 
the child's initial application date so prompt follow-up could occur 
when the State agency or contractor learns that the child has been 
determined ineligible for Medicaid. The child's initial application 
would then be reactivated. We indicated that the regulation at 
Sec. 457.350(f)(5) requires that, if a child screened potentially 
eligible for Medicaid is ultimately determined not to be eligible for 
Medicaid, the child's original application for the separate child 
health program must be reopened or reactivated and his/her eligibility 
under the separate child health program determined without a new 
application. We also noted that a State could establish a presumptive 
eligibility process for a separate child health program to enroll an 
applicant in the separate child health program pending the formal 
determination of Medicaid eligibility.
    After reviewing our previous response and section 803 of BIPA, we 
now provide further clarification that provisional denial or suspension 
of an application for a separate program would permit the child to be 
presumptively enrolled pending the outcome of a Medicaid eligibility 
determination. This presumptive eligibility period would be time 
limited. As indicated previously, when implementing presumptive 
eligibility consistent with Sec. 435.1102, the

[[Page 33814]]

presumptive eligibility period would begin on the date that a qualified 
entity determines that the child has family income below the applicable 
income level and end on the day a Medicaid eligibility determination is 
made, or, if a Medicaid application is not filed, the last day of the 
month following the date presumptive eligibility began. However, if the 
application for the separate child health program is denied, then 
presumptive eligibility in the separate child health program would end.
    In addition, we have decided to withdraw Sec. 457.350(f)(5)(iii). 
While it is ordinarily advisable for States to reopen or reactivate the 
child's original application for the separate child health program 
following a denial of Medicaid eligibility, there may be circumstances 
in which a new application would be warranted. For example, 
considerable time may elapse following the initial application, for 
reasons beyond the State's control, and information on the initial 
application may no longer be valid. Therefore, while we strongly 
encourage States to reactivate the original application, we have 
removed Sec. 457.350(f)(5)(iii) in order to allow State discretion in 
this matter.

B. Secretary-Approved Coverage (Sec. 457.450)

    Section 457.450 of the January 2001 final rule provided examples of 
Secretary-approved coverage. After further review of the public 
comments, we are amending our prior responses and revising the final 
rule. This revision is intended to clarify that these examples were not 
meant to be exclusive. The revision also expands the list of examples 
to ensure that the regulation clearly reflects the breadth of possible 
Secretary-approved coverage.
    Comment: One commenter argued that ``Secretary-approved coverage'' 
should provide HCFA with greater flexibility to approve SCHIP State 
plans. The commenter pointed out that Secretary-approved coverage is 
not simply another name for benchmark coverage; title XXI provides for 
Secretary-approved coverage as a flexible way for HCFA to approve a 
State plan. The statute requires no actuarial analysis for this option 
but rather requires only that the coverage be deemed ``appropriate'' 
for the targeted population.
    The commenter recommended that the regulation should simply 
indicate that States must demonstrate, to the Secretary's satisfaction, 
that their coverage meets the needs of their SCHIP populations. The 
manner in which States make this demonstration should be left flexible 
in accordance with the discretion accorded to the States by title XXI 
(66 FR 2567).
    Response: We previously responded to this comment by stating that 
the regulation text at Sec. 457.450 was not meant to be an exhaustive 
list of examples of Secretary-approved coverage and that we remained 
open to reviewing other proposals for Secretary-approved coverage.
    Upon further consideration of this comment; however, we are 
revising the regulation text to make our intent clear. We have added 
the phrase ``but is not limited to'' to clarify our intent to consider 
other benefit packages under Secretary-approved coverage. In addition, 
we have revised Sec. 457.450(b) to permit comprehensive coverage for 
children under a Medicaid demonstration project approved by the 
Secretary under section 1115 of the Act to be considered Secretary-
approved coverage. At Sec. 457.450(c), we permit coverage that includes 
the full benefit for early and periodic screening, diagnosis, and 
treatment or that the State has extended to the entire Medicaid 
population in the State to be considered Secretary-approved coverage. 
We have also added a new Sec. 457.450(e) to clarify that States may 
offer coverage that is the same as that provided by Florida, New York 
and Pennsylvania under their existing comprehensive State-based 
coverage programs. These benefit packages were acknowledged in the 
original title XXI statute as providing appropriate coverage for 
children by permitting those States to continue using the same coverage 
under SCHIP. These modifications will support our consideration of a 
wider range of benefit packages and provide additional flexibility to 
States in proposing coverage that is appropriate for the target 
populations.

C. State Assurance of Access to Care and Procedures to Assure Quality 
and Appropriateness of Care (Sec. 457.495(d))

    Section 457.495(d) of the January 2001 final rule provided that 
decisions related to the prior authorization of health services must be 
completed in accordance with the medical needs of the patient, within 
14 days after receipt of a request for services. After further review 
of the comments, we are amending our prior responses and revising the 
final rule.
    Comment: Several commenters recommended that HCFA identify time 
frames for decisions related to prior authorization of services to 
assure that individuals have access to services without unreasonable 
delay and that services are provided as expeditiously as an enrollee's 
health condition requires.
    Response: In the January 2001 final rule, we responded that we 
agreed with the commenter's recommendations and provided time frames 
for decisions related to prior authorization of services. These time 
frame requirements provided that the decision must be completed in 
accordance with the medical needs of the patient, within 14 days after 
receipt of a request for services. We also allowed for a possible 
extension of up to 14 days if the enrollee requested the extension or 
the physician or health plan determined that additional information was 
needed.
    Upon further consideration, we have decided to amend 
Sec. 457.495(d) to allow States to use either the standards established 
in Sec. 457.495(d) or their existing State law procedures regarding 
prior authorization. Allowing States to use their existing State laws 
will reduce the administrative burden of these regulations for States 
with premium assistance programs, as States usually do not have direct 
contractual relationships with employers group health plans. Given that 
most States already have systems in place to regulate private health 
plans, this change in policy will allow them to use those existing 
systems. Those States that do not have such systems in place must 
comply with the standards set forth in Sec. 457.495(d).

D. Subpart E--State Plan Requirements: Enrollee Financial 
Responsibilities

1. Computation of the Cumulative Cost-Sharing Maximum (Sec. 457.560(a))
    Section 457.560(a) of the January 2001 final rule required States 
to count cost-sharing amounts that the family has a legal obligation to 
pay in computing whether the family has met the cumulative cost-sharing 
maximum. ``Legal obligation to pay'' is defined as amounts a provider 
actually charges the family for covered services, and any other amounts 
for which payment is required under applicable State law for covered 
services to eligible children, even if the family never pays those 
amounts. After further review of public comments and the applicable 
statutory requirement, we are revising these provisions to provide 
greater State flexibility in meeting the statutory requirements and in 
protecting beneficiaries.
    Comment: A number of commenters disagreed with the proposed 
definition of ``legal obligation'' for use in connection with counting 
cost-sharing amounts against the cumulative cost-sharing maximum. They 
noted that it is

[[Page 33815]]

very difficult and time-consuming to track payments that have not 
occurred. One commenter suggested changing the definition of the term 
``legal obligation'' to only those cost-sharing amounts, which families 
have actually paid (66 FR 2588).
    Response: We previously responded that to track incurred costs, 
States could rely on documentation based upon provider bills that 
indicate the enrollee's share rather than relying only on evidence of 
payments made by the enrollee. We did not adopt the commenters' 
suggestion because it could result in families being legally obligated 
to pay cost-sharing amounts in excess of the cumulative maximum.
    Upon further consideration of these comments, we are removing the 
definition of ``legal obligation to pay'' at Sec. 457.560(a) because we 
have concluded that it does not ensure that enrollees' expenses are 
limited to the cost-sharing maximum in each year as intended. Requiring 
States to count incurred but not yet paid costs at the time that they 
are incurred could disadvantage some families, such as families that 
arrange payment plans. For these families, the payments made in a 
subsequent year would be counted in the year that they are incurred and 
not the year paid, which could result in the family paying an amount 
above the maximum in the subsequent year. Accordingly, we have 
eliminated Sec. 457.560(a) in order to allow each State to define how 
it counts cost-sharing amounts against the cumulative cost-sharing 
maximum.
2. Children with Family Incomes at or Below 150 Percent of the FPL 
(Sec. 457.560(b))
    Section 457.560(b) of the January 2001 final rule provided that for 
targeted low-income children with family income at or below 150 percent 
of the Federal poverty level (FPL), the State may not impose premiums, 
deductibles, copayments, coinsurance, enrollment fees, or similar cost-
sharing charges that, in the aggregate, exceed 2.5 percent of total 
family income for the length of the child's eligibility period in the 
State.
    Comment: We received several comments requesting that we reconsider 
the 2.5 percent cumulative cost-sharing maximum. These commenters 
raised specific concerns regarding the 2.5 percent cumulative cost-
sharing maximum, including the following: the provision is not 
supported by the statute; it is very difficult to administer two caps 
(2.5 percent and 5 percent) and track against two caps; limits on 
copayments and deductibles are already found in Sec. 457.555 and 
section 2103(e)(3)(A) of the Act; States have already implemented flat 
cumulative cost-sharing maximums that are administratively efficient 
and provide families with fluctuating incomes greater stability; HCFA's 
commissioned study by George Washington University clearly demonstrates 
that it is rare that enrollees will reach the 5 percent cost-sharing 
maximum; and, when a limit is set using a percentage, there is no need 
to make the percentage less.
    One of the commenters also noted that the Medicaid maximum charges 
for premiums and other cost-sharing charges, which apply to families at 
or below 150 percent of the FPL, are minimal in amount and are not 
based upon income or family size. As a result, the addition of another 
level of cost sharing (2.5 percent) adds to an already complex cost-
sharing structure, in this commenter's view. The commenter added that 
the requirements are virtually impossible to implement in a program 
that subsidizes employer sponsored insurance (66 FR 2588).
    Response: We previously responded that a lower cost-sharing maximum 
for children is necessary in order for States to comply with section 
2103(e)(2)(B) of the Act, which requires that separate child health 
plans may only vary cost sharing based on the family income of targeted 
low-income children in a manner that does not favor children in 
families with higher incomes over children in families with lower 
incomes. We further explained that a State could ease administration by 
implementing a cost-sharing structure that places a 2.5 percent cap on 
families at all income levels or imposing premiums rather than 
copayments.
    We have reconsidered our policy related to the cumulative cost-
sharing maximum for families with incomes at or below 150 percent of 
the FPL. We acknowledge that lower income families have less disposable 
income to spend on health services than families with higher incomes. 
However, cost sharing for children at or below 150 percent of the FPL 
is limited to nominal amounts under the statute and final rule. Because 
of this limit on cost-sharing amounts for children in families at or 
below 150 percent of the FPL, it is unlikely any family in this income 
range would approach spending 5 percent of income on health services. 
The application of a 5 percent maximum to all income ranges is 
sufficient to ensure that children in higher income families are not 
favored over lower income families.
    Therefore, we are revising the regulatory requirements at 
Sec. 457.560 to limit cumulative cost sharing to 5 percent of family 
income for all children enrolled in SCHIP, regardless of family income. 
Section 457.560(b) has been removed and Sec. 457.560(c), (now 
Sec. 457.560(a)), has been revised accordingly. States may apply a 
lower cumulative cost-sharing maximum to children in lower income 
families or may place the same limit on children in families at all 
income levels, so long as the cost sharing maximum for eligible 
children does not exceed 5 percent of family income.
    For the same reasons, we are revising our cost-sharing requirements 
that we would apply in evaluating a request for the purchase of family 
coverage, as discussed in the preamble of the January 11, 2001 final 
rule (66 FR 2622). Our previous policy required that cost sharing for 
the entire family, both adults and children, must remain within the 
cumulative cost-sharing maximum. Upon further consideration, we are 
revising this policy to require that only the cost sharing for the 
children in the family must be counted toward the cumulative cost-
sharing maximum. Section 2103(e)(3)(B) specifies that cost sharing with 
respect to all targeted low-income children in the family may not 
exceed 5 percent of such family's income for the year. Therefore, 
States need not count an adult family member's cost sharing toward the 
cumulative cost-sharing maximum when providing family coverage.

E. Annual Report (Sec. 457.750)

    Section 457.750 of the January 2001 final rule required States to 
submit an annual report to HCFA by January 1 of each year and specified 
the contents of that report. Specifically, Sec. 457.750(b)(7) of the 
January 2001 final rule required that annual reports submitted by the 
State to include data on the primary language of SCHIP enrollees. Based 
upon further review of public comments, we are revising the final rule 
to delete this requirement.
    Comment: We received several comments requesting that HCFA require 
States to collect data pertaining to one or more of the following 
categories of information about enrollees and their SCHIP coverage: 
gender, ethnicity, race, primary language, English proficiency, age, 
service delivery system, family income, and geographic location. 
Certain commenters suggested that these data be collected and reported 
to HCFA in the State evaluations, annual reports, and/or quarterly 
statistical reports. These commenters felt this information would help 
target outreach, retention, enrollment, and service efforts to under-
represented groups. These commenters also indicated that such reporting 
requirements are consistent with the

[[Page 33816]]

goals of Healthy People 2010 and recently enacted legislation directing 
the Secretary of Commerce to produce statistically reliable annual 
State data on the number of uninsured, low-income children categorized 
by race, ethnicity, age, and income. One commenter indicated that HCFA 
should require States to document the appropriate range of services and 
networks of providers available, given the various language groups 
represented by enrollees. Additionally, some commenters noted that HCFA 
should require States to provide an assessment of their compliance with 
civil rights requirements.
    Response: We previously agreed with several of the comments 
summarized above. Several commenters urged us to require States to 
report data on gender, race, ethnicity and primary language of SCHIP 
enrollees to HCFA. We included a provision in the January 11, 2001 rule 
to require States to report on primary language of enrollees in their 
annual report. We also included a provision in the January 11, 2001 
rule to require States to report data, on a quarterly basis, on the 
race, ethnicity, and gender of SCHIP enrollees using the format 
prescribed by the OMB Statistical Directive 15--Standards for 
Maintaining, Collecting and Presenting Data on Race and Ethnicity. We 
felt that this policy was consistent with overall program goals, as 
well as the civil rights requirements.
    Upon further consideration, we have decided to withdraw 
Sec. 457.750 (b)(7) and will no longer require States to report primary 
language in their annual reports. States currently collect information 
on primary language in different ways (for example, on applications, 
through statewide surveys, etc.) In addition, States may find that 
collecting information about the primary language of the head of 
household rather than the child applicant/enrollee is more useful, for 
example, for purposes of translating written materials about the 
program. Therefore, we find that providing States with flexibility to 
decide what information to collect about primary language, and how to 
collect it, will best serve the needs of the program and that 
withdrawing this provision will not inhibit the Federal government from 
effectively evaluating the program. We have retained the requirement 
for States to report data on gender, race, and ethnicity at 
Sec. 457.740(a)(3)(ii) and Sec. 457.740(c).
    After reviewing this subpart, we find that further revision is not 
necessary. Therefore, we have retained the other requirements for the 
contents of the annual report as stated in the January 11, 2001 final 
rule, including the requirement to provide information related to a 
core set of national performance measures as developed by the 
Secretary. We want to reiterate our statements from the January 11, 
2001 final rule that we are mindful of the complexities of developing 
these measures and will work closely with States to do so. We plan to 
convene a workgroup with States to develop a limited set of core 
performance goals and measures. As we undertake this effort, we will be 
guided by the objectives, goals, and measurement methods States have 
already developed.

F. Program Integrity

1. Procurement Standards (Sec. 457.940)
    Section 457.940(d) of the January 2001 final rule requires that all 
contracts under part 457 include provisions that define a sound and 
complete procurement contract, in accordance with the procurement 
requirements of 45 CFR part 74. We are making a technical change to 
accommodate a possible change in Departmental policy.
    Comment: Several commenters recommended that procurement standards 
in 45 CFR part 92 are more appropriate for non-entitlement programs, 
such as SCHIP, because they allow States to use their own procurement 
standards when purchasing services with Federal grant money. Commenters 
stated that flexibility will enable States to make cost-effective and 
quality health plan selections. One commenter noted that flexibility to 
establish higher rates to ensure provider participation should be 
coupled with stricter enforcement (66 FR 2615).
    Response: We disagreed with the commenter's recommendation for 
changing the procurement standards applicable to SCHIP. We stated that 
the procurement requirements of 45 CFR 74.43 are more appropriate for 
separate child health programs because they allow for accountability as 
well as State flexibility in implementation.
    Upon further consideration, we have decided to revise our policy to 
allow States to use the procurement requirements of either 45 CFR 74.43 
or 45 CFR 92.36, as applicable. Currently, the Department has issued a 
Notice of Proposed Rulemaking in the Federal Register published on 
November 15, 2000, to amend 45 CFR 92. When this regulation change is 
final, the applicable procurement requirement for SCHIP will be 45 CFR 
92.36. Until this regulation change is final, the provisions of 45 CFR 
74.43 are applicable to SCHIP.
2. Verification of Enrollment and Provider Services Received
    Section 457.980(a) of the January 2001 final rule provided that the 
State must establish methodologies to verify whether beneficiaries have 
received services for which providers have billed. Based upon further 
review of public comments, we are removing Sec. 457.980(a) because we 
do not believe that this provision is necessary to comply with 
applicable statutory requirements or effective and efficient program 
operation.
    Comment: Several commenters noted that the provisions in 
Sec. 457.980 could be difficult to implement in managed care plans and 
that verification may be burdensome in a capitated system. The 
commenters requested that we clarify that it would be acceptable if 
there were a provision in the contract with the health plan to ensure 
provider services. One commenter expressed concern regarding external 
verification of provider services received in the managed care market, 
especially in capitation-based plans. The commenter felt that States 
should be able to handle this through the normal provider evaluation 
and review procedures used by managed care entities (66 FR 2618).
    Response: In our previous response to these comments, we indicated 
that it is necessary for the effective and efficient administration of 
any State separate child health insurance program to monitor and verify 
enrollee receipt of services for which providers have billed or 
received payment, or that providers have contracted to furnish 
regardless of the method of payment. Therefore, the provisions of 
Sec. 457.980(a) apply to States using managed care plans as well as 
other systems of health insurance and care delivery. Plans 
participating in SCHIP are accountable to the State for providing 
services and care to SCHIP participants. States must ensure, when 
contracting with providers, that beneficiaries are receiving care they 
are entitled to and for which States have provided funds.
    Upon further consideration, we have decided to remove 
Sec. 457.980(a). This provision would be difficult to apply to managed 
care settings in which individual services are not billed to the State. 
States also have interpreted this provision as holding them responsible 
for the internal workings of the managed care plans. Although the 
fiscal integrity of payments made under SCHIP is important, when this 
provision is removed, the provision at Sec. 457.980(b) is

[[Page 33817]]

adequate to address the need for program integrity.

G. Applicant and Enrollee Protections

    We previously explained that subpart K--Applicant and Enrollee 
Protections--was developed to consolidate and clarify certain 
provisions involving applicant and enrollee protections. More 
specifically, the subpart defined the components of a review process 
and established minimum requirements. The subpart applied only to 
separate child health programs.
    Our previous policy required States to adopt all of the minimum 
requirements in subpart K in designing their review process for their 
separate child health program. States contracting with providers that 
were subject to applicable State consumer protection law that met or 
exceeded the requirements in the regulation could rely upon State law 
to satisfy the review requirements. In the absence of State law, States 
were required to adopt a review process that met the requirements of 
this regulation.
    While we will continue to strongly support the need for consumer 
protections for all SCHIP-eligible children, we have revised our 
previous policy to afford States greater flexibility in designing their 
review processes. Our new policy will require States to either meet the 
requirements of Secs. 457.1130-457.1180 or to demonstrate that 
participating providers comply with State-specific grievance and appeal 
requirements currently in effect for health insurance issuers (as 
defined in section 2791(b) of the Public Health Service Act) in the 
State. For example, if a State had a grievance and appeal law that 
applied to HMOs and the State provides coverage under SCHIP through 
managed care plans, then States would have the option of requiring the 
plans to meet the HMO review requirements under the State law. In 
absence of any State law governing grievance and appeals, a State is 
required to demonstrate compliance with Subpart K. We have revised 
Sec. 457.1120 accordingly. Furthermore, we have revised Secs. 457.1130, 
457.1140, 457.1150, 457.1160, 457.1170, and 457.1180 by adding 
``Program Specific Review Process:'' at the beginning of each section 
heading to clarify that these provisions apply to a program specific 
review process as defined in Sec. 457.1120(a)(1), and not to a 
Statewide standard review as defined in Sec. 457.1120(a)(2).
    The basis for this decision is explained in greater detail in the 
following summary of public comments received on the proposed 
regulation and published in the January 11, 2001 final rule.
Overview of Enrollee Rights
    Comment: A number of commenters supported HCFA's efforts to 
incorporate the Consumer Bill of Rights and Responsibilities (CBRR) 
provisions in the proposed regulations (66 FR 2627). Another supported 
HCFA's effort to offer States a good deal of flexibility in the 
application of these requirements.
    Other commenters believed that HCFA exceeded its statutory 
authority in applying the CBRR to SCHIP regulations. Commenters noted 
that the requirements could be in conflict with existing State law, 
severely limited States' flexibility in contracting, and hampered their 
ability to adjust contract provisions that are not working well. The 
commenters asserted that applying the CBRR to SCHIP could result in 
coverage for children in Medicaid expansion programs under consumer 
protections available in Medicaid, while children in separate child 
health programs would be covered under State consumer protection laws. 
One commenter suggested that, where a conflict existed, or State law 
imposed similar requirements, State law should prevail. Other 
commenters indicated that the requirements presented an administrative 
burden to the State.
    Response: Upon further consideration, we have revised review 
requirements to permit greater State flexibility. While we will 
continue to expect States to have adequate consumer protections for 
SCHIP children, we will not require that a State's review process 
adhere explicitly to the requirements identified in this subpart. We 
believe that State law will generally provide adequate protections for 
enrollees, and the benefits of using existing processes rather than 
creating a separate process solely for SCHIP children will greatly 
enhance the ease with which States can administer their programs. As 
discussed earlier, our new policy will require States to either meet 
the requirements of Secs. 457.1130-457.1180 or to demonstrate that 
participating providers comply with State-specific grievance and appeal 
requirements currently in effect for health insurance issuers (as 
defined in section 2791(b) of the Public Health Service Act) in the 
State.
    We recognize that the protection of enrollee rights is a critical 
component of program costs for the provision of child health 
assistance, and we have carefully balanced this concern against the 
administrative burden our requirements impose on the States. We believe 
that the revised requirements will address the commenter's concerns 
related to administrative burden, and we remain of the view that the 
costs of ensuring applicant and enrollee protections need not be large 
relative to the cost of services provided to enrollees. We believe that 
the revision of our previous policy affords States even broader 
flexibility to design and implement efficient and effective review 
processes.
Overview of Applicant and Enrollee Protections in Final Regulation
    In the January 11, 2001 final rule, we discussed the protections 
for applicants and enrollees in separate child health programs that had 
been incorporated throughout the regulation (66 FR 2629). Given that we 
have revised our policy in this subpart and others, the following 
information updates references to this subpart and other subparts of 
the regulation:
    <bullet> Review Process
    Upon further consideration we have revised our requirements for a 
review process for health services matters. Previously, we defined 
minimum requirements in Secs. 457.1130(b) and 457.1150(b) to provide 
enrollees in separate child health programs with an opportunity for an 
independent external review. Section 457.1160(b) set a standard and 
expedited time frame for reviews of health services matters.
    We continue to expect that a State will have an independent, 
external review process for health services matters and that specific 
time frames be in place for such a review. However, we have revised our 
requirements to afford States greater flexibility in the design of such 
a review process. More specifically, rather than designing a new review 
process specifically for a separate child health program, States may 
choose to require providers to comply with State-specific grievance and 
appeal requirements currently in effect for health insurance issuers as 
a means to comply with this regulation.
Review Processes
    In the January 2001 final rule, we clarified that matters subject 
to review included eligibility and enrollment matters and health 
services matters. We further defined that an appropriate ``review 
process'' in a separate child health program would address the matters 
subject to review and would include the following components: core 
elements of review, impartial review, time frames, continuation of 
enrollment, and notice. Finally, we explained the applicability of the 
review process when States offer premium assistance for group health 
plans.

[[Page 33818]]

    In the January 2001 final rule, we clarified that a State had to 
implement a review process that included all of the components and met 
all of the minimum requirements in each of these areas. We also 
indicated that existing State law that governed private health plans 
would only apply to the extent that the State law met or exceeded the 
minimum requirements.
    Upon further consideration of the public comments, we have decided 
to revise our review requirements as described earlier and have 
articulated our rationale in the responses to the following summary of 
comments received on subpart K published in the Federal Register 
published January 11, 2001.
    Comment: Commenters noted that the lack of minimum standards for 
review processes may cause lengthy time periods for completion of 
grievance and appeals processes, leaving many enrollees without needed 
benefits (66 FR 2633). The commenters recommended that HCFA establish a 
set of minimum standards that States and participating providers must 
meet when providing services to enrollees. Other commenters expressed 
their view that the rules lack sufficient clarity and specificity to 
ensure that consumers will be accorded adequate due process protections 
in a State that does not adopt the Medicaid procedures.
    As discussed we also received a number of comments that HCFA 
exceeded its statutory authority under title XXI in defining specific 
requirements for a review process (66 FR 2633). Several commenters 
believed States should be allowed to use existing appeal mechanisms for 
managed care. One commenter noted opposition to Federal requirements 
that would force the States to alter standard commercial plan contracts 
(for example, specific appeals criteria or procedures), and urged HCFA 
to allow States to develop appeals and grievance procedures that are 
consistent with State insurance regulations. Other commenters argued 
that Federal requirements for resolving enrollee complaints and 
grievances would reduce plan participation because many plans would not 
be willing to have separate processes for SCHIP enrollees that exceed 
existing State statutory requirements.
    Response: Upon further consideration, we have decided to revise our 
policy related to establishing minimum standards. We had previously 
indicated that in an effort to strike a balance between State 
flexibility and enrollee protection consistent with the provisions and 
framework of title XXI, subpart K had been developed to assure a 
minimum set of standards for all individuals obtaining services through 
SCHIP. However, in light of the fact that the majority of States have 
existing consumer protection laws that govern the private insurance 
market; concerns that providers may elect not to participate in SCHIP 
if they must assure additional (and possibly duplicative) protections 
for enrollees; and concerns related to the potential administrative 
burden associated with developing and implementing the protections 
identified in this regulation we have decided to provide additional 
flexibility to States in this area.
    Therefore, the revised regulation provides States with the option 
of either designing a review process that meets the requirements of 
Secs. 457.1130--457.1180 or demonstrating that participating providers 
comply with State-specific grievance and appeal requirements currently 
in effect for health insurance issuers (as defined in section 2791(b) 
of the Public Health Service Act) in the State. States, with or without 
State law, may still elect to use the Medicaid fair hearing process to 
satisfy the requirements of this regulation, however it is not 
required.
    Comment: Commenters recommended that HCFA further define matters 
that must be subject to review. Commenters also indicated that 
eligibility matters should be reviewed under separate processes than 
health services matters, and that the review process for eligibility 
determinations should be the Medicaid grievance and fair hearing 
process rather than deferring to internal appeals or State-specific 
insurance practices (66 FR 2637). Another noted that the external 
system of review should be as close as possible to that of Medicaid.
    Response: We previously responded that matters subject to review 
would include eligibility and enrollment matters and health services 
matters. We agreed with the comment that internal and external review 
consistent with State insurance law may not be the appropriate form of 
review for eligibility and enrollment matters, but we left this matter 
to State discretion, as long as the minimum review requirements were 
met. We decided not to require that the external review for separate 
child health programs mirror the external review process required under 
Medicaid and to take a more flexible approach consistent with title 
XXI.
    As discussed earlier, we have revised this regulation to allow 
States to either design a review process that meets the requirements of 
Secs. 457.1130--457.1180 or to demonstrate that participating providers 
comply with State-specific grievance and appeal requirements currently 
in effect for health insurance issuers (as defined in section 2791(b) 
of the Public Health Service Act) in the State. States that elect to 
use State-specific grievance and appeal requirements still must provide 
an opportunity for review of all the matters listed in Sec. 457.1130. 
We recognize that State law may not use the same terminology as 
Sec. 457.1130; however the State law must be consistent with the intent 
of Sec. 457.1130 to comply with this regulation. States without law 
that is consistent with Sec. 457.1130 will have to identify a method 
for providing an opportunity for review for those items not covered by 
the State legislation.
    Comment: We received a number of comments on the proposed scope of 
the review process (66 FR 2639). The following summarizes the key 
issues raised by commenters related to several of the minimum 
requirements (excluding matters subject to review or the applicability 
of the review process to States with premium assistance programs, which 
are addressed in separate comments):
    Core Elements of Review: Several commenters suggested that HCFA 
develop minimum standards for a review process to assure that all 
enrollees in SCHIP are afforded basic consumer protections. Other 
commenters asserted that the establishment of minimum standards created 
an additional administrative expense for States, particularly given 
that many separate child health programs involved entities that are 
already subject to existing State consumer protection law. One 
commenter stated their view that a choice between Medicaid and State 
insurance practices is appropriate for issues other than eligibility 
and disenrollment determinations. Another commenter expressed that 
HCFA's intent was not clear and that they were unsure whether States 
without existing State laws requiring internal and external review 
procedures must establish any procedures for children enrolled in 
SCHIP.
    Impartial Review: Several commenters recommended that the State be 
involved in all external reviews to assure that an independent and 
impartial review occurs.
    Timeframes: Several commenters noted that the regulation should 
require that grievances and appeals be decided in a timely fashion, and 
a number of commenters suggested appropriate timeframes. A different 
commenter, representing providers, noted that it saw no reason why 
providers should not be expected to respond within seven days

[[Page 33819]]

to a request for treatment. The commenter also believed that HCFA 
should establish minimum requirements for an expedited procedure to 
meet the needs of enrollees with severe medical conditions. Another 
commenter requested that HCFA clarify whether a State that has existing 
laws relating to consumer protections is able to choose its Medicaid 
procedures instead.
    Notice: Several commenters expressed support for the inclusion of 
rules setting minimum standards for procedural fairness. One commenter 
noted that notice is a basic due process right required by the U.S. 
Constitution under well-settled law whenever a citizen is denied a 
public benefit, and that the rules should specify that notice must be 
timely. The commenter also recommended that for current recipients, 
notice of an adverse action should be in advance of the action. Another 
commenter recommended notice include information regarding the right to 
appeal and to be accompanied to the hearing by a representative.
    Response: We previously responded by expressing appreciation for 
all commenters supporting our decision to develop minimum requirements 
for a review process and stated that we had the statutory authority to 
require States to adopt such requirements.
    Because we believed that all SCHIP-eligible children should be 
afforded a minimum set of consumer protections regardless of the State 
within which they reside, we did not support suggestions to allow 
existing State law to apply. We argued that State laws applicable to 
commercial plans may or may not apply to a separate child health 
program, depending on the provisions of the State law. Additionally, we 
said that the scope of State law varies from State to State and 
enrollees would be subject to a different degree of protection 
depending upon where they enrolled in the program. We also indicated 
that we expected that States that decide to adopt Medicaid procedures 
for the review process in their separate child health program would 
thereby be meeting State law requirements applicable to commercial 
health plans.
    We also addressed commenters' concerns that certain enrollee 
protections may create an additional administrative expense for some 
States by indicating that the importance of ensuring an enrollee's 
basic right to a fair and efficient decision regarding eligibility and 
enrollment or health services matters justified the administrative 
expenses that may be incurred.
    Upon further consideration, we have decided to revise this 
regulatory provision. Additional research regarding State consumer 
protection law reveals that most States do have existing laws that 
govern the private insurance market and many SCHIP providers are 
subject to this law. We also recognize the valid concern that providers 
may elect not to participate in SCHIP if they must assure additional 
(and possibly duplicative) protections for enrollees; the potential 
confusion for enrollees who could be subject to a different review 
process than other commercial enrollees in the same health plan, and 
the concern related to the potential administrative burden associated 
with developing and implementing the protections identified in this 
regulation.
    Therefore, the revised regulation provides States with the option 
of either designing a review process that meets the requirements of 
457.1130--457.1180 or demonstrating that participating providers comply 
with State-specific grievance and appeal requirements currently in 
effect for health insurance issuers (as defined in section 2791(b) of 
the Public Health Service Act) in the State. States--with or without 
State law--may still elect to use the Medicaid fair hearing process to 
satisfy the requirements of this regulation, however, it is not 
required.
    Comment: Commenters noted the difficulty of applying the 
requirements of this subpart in States with a premium assistance 
program given that States do not directly contract with providers in 
this situation. Commenters expressed concern that no State could ever 
comply thus making a premium assistance model impossible to implement 
(66 FR 2644).
    Response: We previously responded by acknowledging that States' 
SCHIP programs do not have direct authority over group health plans 
that may be providing coverage under premium assistance programs. At 
the same time, we noted that there is no basis for providing children 
fewer procedural protections because they may be enrolled in a premium 
assistance program under SCHIP. In order to balance these concerns, the 
regulations provided States flexibility so that they may offer premium 
assistance through plans that do not meet the review standards set out 
in these regulations, as long as families are not required to enroll 
their children in these plans. Under Sec. 457.1190, we indicated that a 
State that has a premium assistance program through which it provides 
coverage under a group health plan that does not meet the requirements 
of Secs. 457.1130(b), 457.1140, 457.1150(b), 457.1160(b), and 457.1180 
must give applicants and enrollees the option to obtain health benefits 
coverage through its direct coverage plan. The State must provide this 
option at initial enrollment and at each redetermination of 
eligibility.
    The revision of this regulation to allow States to either design a 
review process that complies with this subpart or to use State-specific 
grievance and appeal requirements currently in effect provides 
additional flexibility to States implementing premium assistance 
programs. In addition to the option discussed in our previous response, 
States may enroll eligible children in group health plans that provide 
procedures that comply with the state-specific review requirements for 
health insurance issuers in the State. If the health plan is not 
subject to either the program specific review or the Statewide standard 
review, then the State will need to notify the enrollee that the plan 
does not necessarily comply with review procedures and must give 
children in the family the option to obtain health benefits coverage 
through its direct coverage plan. We have revised Sec. 457.1190 to 
reflect this new requirement.

H. Compliance Dates

    In the ``Effective Dates'' section of the January 2001 final rule, 
we stated that to the extent contract changes are necessary, States 
will not be found out of compliance until the next contract cycle. By 
contract cycles, we mean the earlier of the date of the original period 
of the existing contract, or the date of any modification or extension 
of the contract (whether or not contemplated within the scope of the 
contract).
    As mentioned on page 2490 of the Federal Register published on 
January 11, 2001, in establishing the effective date for the 
regulation, we made allowances for contract cycles. To the extent 
contract changes are necessary, States would not be found out of 
compliance until the next contract cycle. We previously defined 
``contract cycle'' as the earlier of the date of the original period of 
the existing contract, or the date of any modification or extension of 
the contract (whether or not contemplated within the scope of the 
contract).
    Upon further review, we note that the definition of ``contract 
cycle'' leaves open the possibility that compliance requirements could 
be based on an unrelated contract modification, such as an update in 
payment rates, regardless of whether the state had the authority or 
leverage to obtain the necessary contract changes. Therefore, we have 
amended

[[Page 33820]]

the definition of ``contract cycle'' to be the earlier of the date of 
the original period of the existing contract, or the date of any 
extension or modification that would change the term of the contract. 
This change will clarify our intent that states ensure compliance with 
this rule by no later than the end of the contract.
    We also note that the previous definition did not allow for, to the 
extent legislative changes are necessary, states to not be found out of 
compliance until the conclusion of the next legislative cycle following 
the effective date of the rule. To the extent legislative changes are 
necessary, states will not be found out of compliance until the 
conclusion of the next legislative cycle following the effective date 
of the rule.

III. Technical Revisions and Clarifications

    In this final rule, we have made the following technical revisions 
and clarifications to the January 11, 2001 final rule:
    <bullet> In the final rule published on January 11, 2001, we 
inadvertently omitted one of the qualified entities that may perform 
presumptive eligibility for Medicaid. As a result we have made a 
technical correction to Secs. 435.1101 and 436.1101, adding paragraph 
(5) to each of these sections. This technical change adds entities that 
are authorized under section 803 of BIPA to determine Medicaid or SCHIP 
eligibility as qualified entities for the purpose of performing 
presumptive eligibility for Medicaid. We have also made this same 
conforming change under Sec. 457.301 under the definition of 
``qualified entity''. These same entities may perform presumptive 
eligibility for a separate child health program. (See Secs. 435.1101 
and 436.1101)
    <bullet> The definition for State health benefits plan was 
inadvertently omitted from the final rule published in January 2001. We 
define the term as follows: ``State health benefits plan means a plan 
that is offered or organized by the State government on behalf of State 
employees or other public agency employees within the State. The term 
does not include a plan in which the State provides no contribution 
toward the cost of coverage and in which no State employees 
participate, or a plan that provides coverage only for a specific type 
of care, such as dental or vision care.''
    We revised the definition from the proposed rule in order to 
clarify that we would not consider a benefit plan with no State 
contribution toward the cost of coverage and in which no State 
employees participate as a State health benefits plan.
    <bullet> We revised Sec. 457.60(b)(2) to refer to the requirements 
regarding substitution of coverage set forth at Secs. 457.805 and 
457.810. We revised Sec. 457.60(b)(7) and (b)(8) to remove cross-
references to other sections of part 457 that have been removed or 
revised.
    <bullet> In the final rule published on January 1, 2001, we used 
the terms ``enrollee'' and ``enrollees'' in section 457.505(d) and (e). 
We changed these terms to ``eligible child'' and ``eligible children'' 
to make clear that these provisions apply only to cost sharing imposed 
on the children in a family.
    <bullet> In Secs. 457.1000, 457.1005 and 457.1010, we removed the 
term ``waiver for'' from these sections in order to clarify that States 
need only obtain approval for an amendment to their existing State 
plan, and do not need to submit a section 1115 demonstration project or 
``waiver'' in order to implement these sections.

IV. Summary of Revisions to the January 11, 2001 Final Rule

    In this final rule we are adopting the provisions set forth in the 
January 11, 2001 final rule with the following substantive changes:
    <bullet> Revise the requirement regarding use of social security 
numbers to provide that a State may not require any family member who 
is not requesting services to provide a social security number 
(including those family members whose income or resources might be used 
in making the child's eligibility determination). (See 
Sec. 457.320(b)(4))
    <bullet> Add an option to permit States to require any applicant 
seeking assistance under SCHIP to furnish a social security number. The 
regulation adds a cross-reference to the Medicaid regulations regarding 
the use of social security numbers, which would apply to States 
electing this option. (See Sec. 457.340(b))
    <bullet> Add a requirement for the State to determine the written 
format and timing of information regarding Medicaid eligibility, 
benefits, and the application process that must be given to SCHIP 
applicants. (See Secs. 457.350 (e)(4) and (g)(3))
    <bullet> Remove the provision that the State must not require the 
child to complete a new application for the separate child health 
program following a denial of Medicaid eligibility, but may require 
supplemental information to account for any changes in the child's 
circumstances that may affect eligibility. (See Sec. 457.350 
(f)(5)(iii))
    <bullet> Revise Sec. 457.355(b) to provide that expenditures for 
coverage during a period of presumptive eligibility implemented in 
accordance with Sec. 435.1102 of this chapter will be considered as 
expenditures for child health assistance under the plan. (See 
Sec. 457.355 (b))
    <bullet> Revise the provisions regarding Secretary-approved 
coverage to permit comprehensive coverage for children under a Medicaid 
demonstration project under section 1115 of the Act to be considered 
Secretary-approved coverage. (See Sec. 457.450(b))
    <bullet> Add the requirement that States may offer coverage that is 
the same as that provided by Florida, New York, and Pennsylvania under 
their existing comprehensive State-based coverage programs. (See 
Sec. 457.450(e))
    <bullet> Revise Sec. 457.495(d) to allow States to use either the 
standards established in Sec. 457.495(d) or existing State law 
regarding prior authorization of health services.
    <bullet> Remove Sec. 457.560(a) regarding cost-sharing amounts that 
the family has a ``legal obligation to pay'' to allow each State to 
define how it counts cost-sharing amounts against the cumulative cost-
sharing maximum.
    <bullet> Revise Sec. 457.560(b) to limit cumulative cost sharing to 
five percent of family income for all children enrolled in SCHIP, 
regardless of family income. We have also made a conforming change to 
revise the cross reference at Sec. 457.540(f) to refer to 
Sec. 457.560(a).
    <bullet> Remove the requirement that States collect and provide 
data in the annual report regarding the primary language of SCHIP 
enrollees. (See Sec. 457.750(b)(7))
    <bullet> Revise the Procurement standards requirements to refer to 
part 92 or part 74 for defining a complete contract. (See 
Sec. 457.940(b) and (d))
    <bullet> Remove the requirement that the State must establish 
methodologies to verify whether beneficiaries have received services 
for which providers have billed, to allow State flexibility in 
establishing a program integrity system that identifies, reports, and 
verifies the accuracy of claims. (See Sec. 457.980)
    <bullet> Revise Sec. 457.1120 to provide that the State must have 
either a program specific review process that meets the requirements of 
subpart K or a Statewide standard review process that complies with 
State review requirements currently in effect for health insurance 
issuers in the State.
    <bullet> Amend Secs. 457.1130, 457.1140, 457.1150, 457.1160, 
457.1170, and 457.1180, by adding ``Program Specific Review Process:''.
    <bullet> Revise Sec. 457.1190 to refer to ``a program specific 
review or a statewide standard review.''

[[Page 33821]]

V. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite prior public comment on proposed rules. A 
notice of proposed rulemaking includes a reference to legal authority 
under which the rule is proposed, and the terms and substance of the 
proposed rule or a description of the subjects and issues involved. In 
this case, a notice of proposed rulemaking was published on November 8, 
1999 and a final rule was published on January 11, 2001 in response to 
comments received on the proposed rule. The January 11, 2001 rule's 
effective date was delayed so that we could give further consideration 
to the comments we had already received on the proposed rule. Because, 
this final rule including the modifications made in this publication is 
the product of notice and comment procedure, there is no need to engage 
in a further notice of proposed rulemaking before adopting this rule.
    While we have decided to afford the public an opportunity to 
comment on the changes in the January 11, 2001 rule made by this 
document, we are doing this in the interest of openness and public 
participation, rather than as a legal obligation. In any event, the 
Administrative Procedure Act provides a mechanism under which advance 
notice and comment procedure may be waived, if the agency finds that 
good cause exists to waive that procedure. Good cause exists if the 
agency determines that notice and comment procedure is impracticable, 
unnecessary, or contrary to the public interest and the agency 
incorporates a statement of the finding and its reasons in the rule 
issued.
    While under the Administrative Procedure Act we do not believe we 
are required to engage in notice and comment procedure at this 
juncture, we believe that good cause would exist were it necessary for 
dispensing with notice and comment because expeditious publication of 
the final rule will afford states with the additional certainty of the 
options which they will have available to them in implementing SCHIP 
programs. These will facilitate their ability to provide needed health 
care coverage to increased numbers of currently uninsured children. 
Accordingly, we find that notice and comment procedure in this instance 
would be contrary to the public interest since that procedure would 
unnecessarily impede furnishing needed health care coverage to needy 
children.

VI. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the ``DATES'' 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VII. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review) and the 
Regulatory Flexibility Act (RFA) (September 19, 1980 Public Law 96-
354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more annually).
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations and government agencies. Most 
hospitals and most other providers and suppliers are small entities, 
either by nonprofit status or by having revenues of $25 million or less 
annually. Individuals and States are not included in the definition of 
a small entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million.
    This interim final rule merely revises certain policies set forth 
in the January 11, 2001 final rule, which includes implementing 
regulations for the SCHIP program. The provisions set forth in this 
interim final rule will not have an impact of $110 million or more 
annually. Neither is this rule expected to impose an unfunded mandate 
on States exceeding $110 million annually. Therefore, we have not 
prepared an analysis of cost and benefits as required by E.O. 12866 and 
the Unfunded Mandates Act for rules with significant economic impacts 
or that impose significant unfunded mandates on States. Also, we 
believe the changes being promulgated in this document will have very 
little direct impact on small entities as defined under the RFA or on 
small rural hospitals as defined under section 1102(b) of the Social 
Security Act. Therefore, we are not preparing analyses for either the 
RFA or section 1102(b) of the Act because we have determined, and we 
certify, that this rule will not have a significant economic impact on 
a substantial number of small entities or a significant impact on the 
operations of a substantial number of small rural hospitals. For a 
detailed discussion of the impact of the SCHIP program, refer to the 
January 11, 2001 final rule (66 FR 2659).
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has federalism 
implications. In the January 11, 2001 issuance, on pages 2662 and 2663 
of the Federal Register, we described extensive agency activities that 
involved consultation with State and local officials on program issues 
that have directly resulted in policies in both the proposed and the 
final rules. These activities are ongoing and continue to inform the 
development of agency policies and procedures. The description of these 
activities set forth in the January issuance is still valid and the 
activities discussed have informed development of the revisions 
contained in this document. Indeed, these revisions are essential to 
address concerns raised by State and local officials and to minimize 
the burden on State and local governments.

[[Page 33822]]

VIII. Collection of Information Requirements

    This rule does not impose any new information collection and record 
keeping requirements subject to the Paperwork Reduction Act of 1995 
(PRA).
    The information collection requirements in Secs. 457.50, 457.60, 
457.70, 457.350, 457.360, 457.361, 457.431, 457.440, 457.525, 457.740, 
457.750, 457.760, 457.810, 457.940, 457.965, 457.985, 457.1005, 
457.1015, and 457.1140 of the January 11, 2001 final rule (66 FR 2490), 
have been approved by OMB under OMB control number 0938-0841. We sought 
comments on these requirements in the November 8, 1999 proposed rule 
and in the January 11, 2001 final rule and have made no changes to the 
requirements in this interim final rule. For a detailed discussion of 
the paperwork burden imposed by these provisions, see the January 2001 
final rule (66 FR 2663).

List of Subjects

42 CFR Part 435

    Aid to Families with Dependent Children, Grant programs--health, 
Medicaid, Reporting and record keeping requirements, Supplemental 
Security Income (SSI), Wages.

42 CFR Part 436

    Aid to Families with Dependent Children, Grant programs--health, 
Guam, Medicaid, Puerto Rico, Supplemental Security Income (SSI), Virgin 
Islands.

42 CFR Part 457

    Administrative practice and procedure, Grant programs--health, 
Children's Health Insurance Program, Reporting and record keeping 
requirements.

    42 CFR chapter IV, amended at 66 FR 2490 January 11, 2001, is 
further amended as set forth below:
    A. Part 435 is amended as follows:

PART 435--ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE 
NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA

    1. The authority citation for part 435 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart L--Option for Coverage of Special Groups

    2. In Sec. 435.1101, republish the introductory text of the 
definition of ``Qualified entity'' and amend the definition as follows:
    A. Redesignate paragraphs (8), (9), and (10) as paragraphs (9)(i), 
(9)(ii), and (9)(iii), respectively.
    B. Redesignate paragraphs (5) through (7) as paragraphs (6) through 
(8).
    C. Add a new paragraph (5).
    D. Revise newly redesignated paragraph (9).
    E. Redesignate paragraph (11) as paragraph (10).
    The addition and revision read as follows:


Sec. 435.1101  Definitions related to presumptive eligibility for 
children.

* * * * *
    Qualified entity means an entity that is determined by the State to 
be capable of making determinations of presumptive eligibility for 
children, and that--
* * * * *
    (5) Is authorized to determine eligibility of a child for medical 
assistance under the Medicaid State plan, or eligibility of a child for 
child health assistance under the State Children's Health Insurance 
Program;
* * * * *
    (9) Is an organization that--
    (i) Provides emergency food and shelter under a grant under the 
Stewart B. McKinney Homeless Assistance Act;
    (ii) Is a State or Tribal office or entity involved in enrollment 
in the program under title XIX, Part A of title IV, or title XXI; or
    (iii) Determines eligibility for any assistance or benefits 
provided under any program of public or assisted housing that receives 
Federal funds, including the program under section 8 or any other 
section of the United States Housing Act of 1937 (42 U.S.C. 1437) or 
under the Native American Housing Assistance and Self Determination Act 
of 1996 (25 U.S.C. 4101 et seq.); and
* * * * *

    B. Part 436 is amended as follows:

PART 436--ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS

    1. The authority citation for part 436 continues to read as 
follows:

    Authority: Sec. 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart L--Option for Coverage of Special Groups

    2. In Sec. 436.1101, republish the introductory text of the 
definition of ``Qualified entity'' and amend the definition as follows:
    A. Redesignate paragraphs (8), (9), and (10) as paragraphs (9)(i), 
(9)(ii) and (9)(iii), respectively.
    B. Redesignate paragraphs (5) through (7) as paragraphs (6) through 
(8), respectively.
    C. Add a new paragraph (5).
    D. Revise newly redesignated paragraph (9).
    E. Redesignate paragraph (11) as paragraph (10).
    The addition and revision read as follows:


Sec. 436.1101  Definitions related to presumptive eligibility for 
children.

* * * * *
    Qualified entity means an entity that is determined by the State to 
be capable of making determinations of presumptive eligibility for 
children, and that--
* * * * *
    (5) Is authorized to determine eligibility of a child for medical 
assistance under the Medicaid State plan, or eligibility of a child for 
child health assistance under the State Children's Health Insurance 
Program;
* * * * *
    (9) Is an organization that--
    (i) Provides emergency food and shelter under a grant under the 
Stewart B. McKinney Homeless Assistance Act;
    (ii) Is a State or Tribal office or entity involved in enrollment 
in the program under this title, Part A of title IV, or title XXI; or
    (iii) Determines eligibility for any assistance or benefits 
provided under any program of public or assisted housing that receives 
Federal funds, including the program under section 8 or any other 
section of the United States Housing Act of 1937 (42 U.S.C. 1437) or 
under the Native American Housing Assistance and Self Determination Act 
of 1996 (25 U.S.C. 4101 et seq.); and
* * * * *
    C. Part 457 is amended as follows:

PART 457--ALLOTMENTS AND GRANTS TO STATES

    1. The authority citation for part 457 continues to read as 
follows:

    Authority: Section 1102 of the Social Security Act (42 U.S.C. 
1302).

Subpart A--Introduction; State Plans for Child Health Insurance 
Programs and Outreach Strategies


Sec. 457.60  [Amended]

    2. Amend Sec. 457.60 as follows:
    A. Revise paragraph (b)(2).
    B. In paragraph (b)(7) remove ``and 457.353''.
    C. In paragraph (b)(8) remove ``Secs. 457.1130, 457.1160, 457.1170, 
457.1180 and 457.1190'' and add in its place ``Sec. 457.1120''.

[[Page 33823]]

Sec. 457.60  Amendments.

* * * * *
    (b) * * *
    (2) Procedures to prevent substitution of private coverage as 
described in Sec. 457.805, and in Sec. 457.810 for premium assistance 
programs.
* * * * *

Subpart C--State Plan Requirements: Eligibility, Screening, 
Applications, and Enrollment


Sec. 457.301  [Amended]

    3. Amend Sec. 457.301 as follows:
    A. Republish the introductory text of the definition of ``Qualified 
entity'' and amend the definition as follows:
    i. Redesignate the definition in alphabetical order.
    ii. Redesignate paragraphs (8), (9), and (10) as paragraphs (9)(i), 
(9)(ii), and (9)(iii), respectively.
    iii. Redesignate paragraphs (5) through (7) as paragraphs (6) 
through (8), respectively.
    iv. Add a new paragraph (5).
    v. Revise newly redesignated paragraph (9).
    vi. Redesignate paragraph (11) as paragraph (10).
    B. Add a definition of ``State health benefits plan,'' in 
alphabetical order.
    The addition and revision read as follows:


Sec. 457.301  Definitions and use of terms.

* * * * *
    Qualified entity means an entity that is determined by the State to 
be capable of making determinations of presumptive eligibility for 
children, and that--
* * * * *
    (5) Is authorized to determine eligibility of a child for medical 
assistance under the Medicaid State plan, or eligibility of a child for 
child health assistance under the State Children's Health Insurance 
Program;
* * * * *
    (9) Is an organization that--
    (i) Provides emergency food and shelter under a grant under the 
Stewart B. McKinney Homeless Assistance Act;
    (ii) Is a State or Tribal office or entity involved in enrollment 
in the program under this title, Part A of title IV, or title XXI; or
    (iii) Determines eligibility for any assistance or benefits 
provided under any program of public or assisted housing that receives 
Federal funds, including the program under section 8 or any other 
section of the United States Housing Act of 1937 (42 U.S.C. 1437) or 
under the Native American Housing Assistance and Self Determination Act 
of 1996 (25 U.S.C. 4101 et seq.); and
* * * * *
    State health benefits plan means a health insurance coverage plan 
that is offered or organized by the State government on behalf of State 
employees or other public agency employees within the State. The term 
does not include a plan in which the State provides no contribution 
toward the cost of coverage and in which no State employees 
participate, or a plan that provides coverage only for a specific type 
of care, such as dental or vision care.
* * * * *

    4. Amend Sec. 457.320 by revising paragraph (b)(4) to read as 
follows:


Sec. 457.320  Other eligibility standards.

* * * * *
    (b) * * *
    (4) Require any family member who is not requesting services to 
provide a social security number (including those family members whose 
income or resources might be used in making the child's eligibility 
determination);
* * * * *


Sec. 457.340  [Amended]

    5. Amend Sec. 457.340 by redesignating paragraphs (b) through (e) 
as (c) through (f) and adding a new paragraph (b) to read as follows:


Sec. 457.340  Application for and enrollment in a separate child health 
program.

* * * * *
    (b) Use of social security number. A State may require a social 
security number for each individual requesting services consistent with 
the requirements at Sec. 435.910(b), (e), (f), and (g) of this chapter.
* * * * *


Sec. 457.350  [Amended]

    6. Amend Sec. 457.350 as follows:
    A. Add paragraphs (e)(4) and (g)(3).
    B. Remove paragraph (f)(5)(iii).
    The additions read as follows:


Sec. 457.350  Eligibility screening and facilitation of Medicaid 
enrollment.

* * * * *
    (e) * * *
    (4) The State will determine the written format and timing of the 
information regarding Medicaid eligibility, benefits, and the 
application process required under this paragraph (e).
* * * * *
    (g) * * *
    (3) The State will determine the written format and timing of the 
information regarding Medicaid eligibility, benefits, and the 
application process required under this paragraph (g).
* * * * *


Sec. 457.355  [Amended]

    7. Amend Sec. 457.355 as follows:
    A. Redesignate paragraph (a) as paragraph (b).
    B. Add paragraph designation (a) and paragraph heading to the 
introductory text.
    C. Revise newly redesignated paragraph (b).
    The revisions read as follows:


Sec. 457.355  Presumptive eligibility.

    (a) General rule. * * *
    (b) Expenditures for coverage during a period of presumptive 
eligibility. Expenditures for coverage during a period of presumptive 
eligibility implemented in accordance with Sec. 435.1102 of this 
chapter may be considered as expenditures for child health assistance 
under the plan.

Subpart D--State Plan Requirements: Coverage and Benefits

    8. Revise Sec. 457.450 to read as follows:


Sec. 457.450  Secretary-approved coverage.

    Secretary-approved coverage is health benefits coverage that, in 
the determination of the Secretary, provides appropriate coverage for 
the population of targeted low-income children covered under the 
program. Secretary-approved coverage, for which no actuarial analysis 
is required, may include, but is not limited to the following:
    (a) Coverage that is the same as the coverage provided to children 
under the Medicaid State plan.
    (b) Comprehensive coverage for children offered by the State under 
a Medicaid demonstration project approved by the Secretary under 
section 1115 of the Act.
    (c) Coverage that either includes the full Early and Periodic 
Screening, Diagnosis, and Treatment (EPSDT) benefit or that the State 
has extended to the entire Medicaid population in the State.
    (d) Coverage that includes benchmark health benefits coverage, as 
specified in Sec. 457.420, plus any additional coverage.
    (e) Coverage that is the same as the coverage provided under 
Sec. 457.440.
    (f) Coverage, including coverage under a group health plan 
purchased by the State, that the State demonstrates to be substantially 
equivalent to or greater than coverage under a benchmark health 
benefits plan, as specified in Sec. 457.420, through use of a benefit-
by-benefit

[[Page 33824]]

comparison which demonstrates that coverage for each benefit meets or 
exceeds the corresponding coverage under the benchmark health benefits 
plan.

    9. Revise Sec. 457.495(d) to read as follows:


Sec. 457.495  State assurance of access to care and procedures to 
assure quality and appropriateness of care.

* * * * *
    (d) That decisions related to the prior authorization of health 
services are completed as follows:
    (1) In accordance with the medical needs of the patient, within 14 
days after receipt of a request for services. A possible extension of 
up to 14 days may be permitted if the enrollee requests the extension 
or if the physician or health plan determines that additional 
information is needed; or
    (2) In accordance with existing State law regarding prior 
authorization of health services.

Subpart E--State Plan Requirements: Enrollee Financial 
Responsibilities


Sec. 457.505  [Amended]

    10. Amend Sec. 457.505 as follows:
    A. In paragraph (d)(1) remove ``enrollees'' and add ``eligible 
children'' in its place.
    B. In paragraph (d)(3) remove ``enrollees'' and add ``eligible 
children'' in its place.
    C. In paragraph (e) remove ``by an enrollee'' and add ``on behalf 
of an eligible child'' in its place.


Sec. 457.540  [Amended]

    11. Amend Sec. 457.540(f) by removing ``Sec. 457.560(b)'' and 
adding ``Sec. 457.560(a)'' in its place.


Sec. 457.560  [Amended]

    12. Amend Sec. 457.560 as follows:
    A. Remove paragraphs (a) and (b).
    B. Redesignate paragraphs (c) and (d) as paragraphs (a) and (b).
    C. Revise newly redesignated paragraph (a) to read as follows:


Sec. 457.560  Cumulative cost-sharing maximum.

    (a) A State may not impose premiums, enrollment fees, copayments, 
coinsurance, deductibles, or similar cost-sharing charges that, in the 
aggregate, exceed 5 percent of a family's total income for the length 
of a child's eligibility period in the State.
* * * * *

Subpart G--Strategic Planning, Reporting, and Evaluation


Sec. 457.750  [Amended]

    13. In Sec. 457.750 remove paragraph (b)(7) and redesignate 
paragraph (b)(8) as (b)(7).

Subpart I--Program Integrity


Sec. 457.940  [Amended]

    14. Amend Sec. 457.940 as follows:
    A. In paragraph (b)(1), remove ``45 CFR 74.43'' and add in its 
place ``45 CFR 74.43 or 45 CFR 92.36, as applicable''.
    B. In paragraph (d) remove ``45 CFR part 74'' and add in its place 
``45 CFR part 74 or 45 CFR part 92, as applicable''.


Sec. 457.980  [Amended]

    15. Amend Sec. 457.980 as follows:
    A. Remove paragraph (a); and
    B. Remove paragraph designation (b).

Subpart J--Allowable Waivers: General Provisions


Sec. 457.1000  [Amended]

    16. Amend Sec. 457.1000 as follows:
    A. In paragraph (a)(1) remove the phrase ``for a waiver''.
    B. In paragraph (a)(2) remove the phrase ``a waiver for''.


Sec. 457.1005  [Amended]

    17. Amend Sec. 457.1005 by removing ``Waiver for'' from the section 
heading.


Sec. 457.1010  [Amended]

    18. Amend Sec. 457.1010 by removing ``Waiver for'' from the section 
heading.

Subpart K--State Plan Requirements: Applicant and Enrollee 
Protections

    19. Section 457.1120 is revised to read as follows:


Sec. 457.1120  State plan requirement: Description of review process.

    (a) The State must have one of the following review processes:
    (1) Program specific review. A process that meets the requirements 
of Secs. 457.1130, 457.1140, 457.1150, 457.1160, 457.1170, and 
457.1180; or
    (2) Statewide Standard Review. A process that complies with State 
review requirements currently in effect for all health insurance 
issuers (as defined in section 2791 of the Public Health Service Act) 
in the State.
    (b) The State plan must include a description of the State's review 
process.


Secs. 457.1130, 457.1140, 457.1150, 457.1160, 457.1170, and 
457.1180  [Amended]

    20. Amend Secs. 457.1130, 457.1140, 457.1150, 457.1160, 457.1170, 
and 457.1180 by adding ``Program specific review process:'' at the 
beginning of each section heading.


Sec. 457.1190  [Amended]

    21. In Sec. 457.1190, remove ``Secs. 457.1130(b), 457.1140, 
457.1150(b), 457.1160(b), and 457.1180'' and add ``a program specific 
review or a Statewide standard review, as described in Sec. 457.1120,'' 
in its place.

(Catalog of Federal Domestic Assistance Program No. 93.767, State 
Children's Health Insurance Program)

    Dated: June 18, 2001.
Thomas A. Scully,
Administrator, Health Care Financing Administration.

    Approved: June 20, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-15910 Filed 6-22-01; 8:45 am]
BILLING CODE 4120-01-P