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

Summary:

Section 4901 of the Balanced Budget Act of 1997 (BBA) amended the Social Security Act (the Act) by adding a new title XXI, the State Children's Health Insurance Program (SCHIP) . Title XXI provides funds to States to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children in an effective and efficient manner. To be eligible for funds under this program, States must submit a State plan, which must be approved by the Secretary.

This final rule implements provisions related to SCHIP including State plan requirements and plan administration, coverage and benefits, eligibility and enrollment, enrollee financial responsibility, strategic planning, substitution of coverage, program integrity, certain allowable waivers, and applicant and enrollee protections. This final rule also implements the provisions of sections 4911 and 4912 of the BBA, which amended title XIX of the Act to expand State options for coverage of children under the Medicaid program. In addition, this final rule makes technical corrections to subparts B, and F of part 457.

Table of Contents

Table of Figures

For further information contact:

Regina Fletcher for general information, (410) 786-3293; Diona Kristian for subpart A, State plan, (410) 786-3283; Judy Rhoades for subpart C, Eligibility, (410) 786-4462; Regina Fletcher for subpart D, Benefits, (410) 786-5916; Nancy Fasciano for subpart E, Cost sharing, (410) 786-4578; Kathleen Farrell for subpart G, Strategic planning, (410) 786-1236; Terese Klitenic for subpart H, Substitution of coverage, (410) 786-5942; Maurice Gagnon for subpart I, Program integrity (410) 786-60619; Cindy Shirk for subpart J, Allowable waivers, (410) 786-1304; Christina Moylan for subpart K, Applicant and enrollee protections (410) 786-6102; Judy Rhoades for Expanded coverage of children under Medicaid and Medicaid coordination, (410) 786-4462; Christine Hinds for Medicaid disproportionate share hospital expenditures, (410) 786-4578; and Joan Mahanes for the Vaccines for Children program,(410) 786-4583.

Supplementary information:

Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number 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. Free public access is available on a Wide Area Information Server (WAIS) through the Internet and via asynchronous dial-in. Internet users can access the database by using the World Wide Web; the Superintendent of Documents home page address is http://www.access.gpo.gov/nara_docs/, by using local WAIS client software, or by telnet to swais.access.gpo.gov, then login as guest (no password required). Dial-in users should use communications software and modem to call 202-512-1661; type swais, then login as guest (no password required).

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 SCHIP program 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.

The State Children's Health Insurance Program 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. At the Federal level, SCHIP is administered by the Department of Health and Human Services, through the Center for Medicaid and State Operations (CMSO) of the Health Care Financing Administration (HCFA). Federal payments under title XXI to States are based on State expenditures under approved plans effective on or after October 1, 1997.

This final rule implements the following sections of title XXI of the Act:

• Section 2101 of the Act, which sets forth the purpose of title XXI, the requirements of a State plan, State entitlement to title XXI funds, and the effective date of the program.

• Section 2102 of the Act, which sets forth the general contents of a State plan, including eligibility standards and methodologies, coordination, and outreach.

• Section 2103 of the Act, which contains coverage requirements for children's health insurance.

• The following parts of section 2105 of the Act: 2105(c)(2)(B), which relates to cost-effective community based health delivery systems; 2105(c)(3), which relates to waivers for purchase of family coverage; 2105(c)(5), which relates to offsets for cost-sharing receipts, and 2105(c)(7) which relates to limitations on payment for abortion.

• Section 2106 of the Act, which describes the process for submission and approval of State child health plans and plan amendments.

• Section 2107 of the Act, which sets forth requirements relating to strategic objectives, performance goals and program administration.

• Section 2108 of the Act, which requires States to submit annual reports and evaluations of the effectiveness of the State's title XXI plan.

• Section 2109 of the Act, which sets forth the relation of title XXI to other laws.

• Section 2110 of the Act, which sets forth title XXI definitions.

This final rule also implements the provisions of sections 4911 and 4912 of the BBA, that amended title XIX of the Act to provide expanded coverage to children under the Medicaid program. Specifically, section 4911 of the BBA set forth provisions for use of State child health assistance funds for enhanced Medicaid match for expanded eligibility under Medicaid to provide medical assistance to optional targeted low-income children. Section 4912 of the BBA added a new section 1920A to the Act creating a new option to provide presumptive eligibility for children. Both title XXI and title XIX statutory provisions are discussed in detail in section II. of this preamble.

This final rule also implements section 704 of the Balanced Budget Refinement Act of 1999 (BBRA, Public Law 106-113), enacted on November 29, 1999, which requires the Secretary to refer to the title XXI program as the “State Children's Health Insurance Program” or “SCHIP” in any publication or other official communication.

We note that on May 24, 2000, HCFA published in the Federal Register a final rule (HCFA 2114-F) concerning financial program allotments and payments to States under SCHIP at (65 FR 33616). In that rule, we implemented section 2104 and portions of section 2105 of the Act, which relate to allotments and payments to States under title XXI. For a detailed discussion of title XXI and related title XIX financial provisions, including the allotment process, the payment process, financial reporting requirements and the grant award process, refer to the May 24, 2000 final rule (65 FR 33616). Please note that, to eliminate duplication and provide clarity, this final rule also amends selected sections of the financial rule within Subpart B.

II. Provisions of the Proposed Rule and Discussion of Public Comments

A. Overview

1. Summary of Proposed Provisions and Significant Revisions in This Final Rule.

On November 8, 1999, we published a proposed rule that set forth the programmatic provisions of the State Children's Health Insurance Program (64 FR 60882). The provisions of the proposed regulation were largely based on previously released guidance, and therefore represented policies that had been in operation for some time. In the proposed rule, we identified a number of areas in which we elaborated on previous guidance or proposed new policies.

We received 109 timely comments on the proposed rule. Interested parties that commented included States, advocacy organizations, individuals, and provider organizations. The comments received varied widely and were often very detailed. We received a significant number of comments on the following areas: State plan issues, such as when an amendment to an existing plan is needed; information that should be provided or made available to potential applicants, applicants and enrollees; the exemption to cost sharing for American Indian/Alaska Native children; eligibility and “screen and enroll” requirements; Medicaid coordination issues; eligibility simplification options such as presumptive eligibility; the definition of a targeted low-income child; substitution of private coverage; data collection on race, ethnicity, gender and primary language; grievance and appeal procedures and other enrollee protections; and premium assistance for employer-sponsored coverage.

All public comments have been summarized and are discussed in detail in section II below. A brief summary of key issues discussed in the proposed rule as well as significant revisions made in this final rule follows:

• Subpart A—State Plan Requirements

The proposed regulation included several conditions under which States must submit amendments to approved SCHIP plans. For example, we proposed that a State must submit a plan amendment when the funding source of the State share changes, prior to such change taking effect. In addition, we proposed that amendments to impose cost sharing on beneficiaries, increase existing cost-sharing charges, or increase the cumulative cost-sharing maximum considered the same as amendments proposing a restriction in benefits. We noted that States would be required to follow rules regarding prior public notice and retroactive effective dates for these amendments.

The final regulation clarifies several issues surrounding the circumstances under which amendments must be submitted. It lists more clearly the program changes that must be included in the State plan by submitting an amendment. In addition, the final rule modifies the budget requirements to require a 1-year projected budget for those amendments that have a significant budgetary impact. Budgets are no longer required with every State plan amendment; however States must submit a 3-year projected budget with its annual report (discussed in subpart G). Finally, States must submit an amendment before making changes in the source of the non-Federal share of funding.

We have provided additional clarification with regard to the requirements for coordination between SCHIP and Medicaid, as well as coordination with other public programs. We have modified the regulation text to further emphasize the need for coordination with other public programs after screening for Medicaid eligibility during the SCHIP application process, as well as assisting in enrollment in SCHIP of children determined ineligible for Medicaid.

The section laying out provisions for enrollment assistance and information requirements has been modified to include the provision of linguistically appropriate materials to families of potential applicants, applicants and enrollees in SCHIP to assist them in making informed health care decisions about their health plans, professionals and facilities. We have also clarified that, in addition to information about the types of benefits and participating providers. In addition, States must inform applicants and enrollees about their rights and responsibilities regarding procedures for review of adverse decisions regarding eligibility or health services decisions and the circumstances under which they may be subject to enrollment caps and waiting lists.

• Subpart C—Eligibility, Screening, Applications and Enrollment

The proposed rule outlined provisions for eligibility and enrollment for separate child health programs and implementation of the “screen and enroll” requirement. It also included the title XXI restrictions on the participation of children of public agency employees who are eligible to participate in a State health benefits plan, children who are residing in institutions for mental disease (IMDs), and children who are inmates of public institutions.

The final rule further elaborates on issues surrounding eligibility, enrollment and ensuring that children eligible for Medicaid benefits are enrolled in Medicaid. We have modified the definition of “targeted low-income child” to parallel a modification to the definition of “optional targeted low-income child” under the Medicaid regulations. This modification effectively excludes from title XXI “maintenance of effort” provisions certain section 1115 demonstrations that were in place on March 31, 1997, but that were so limited in scope that we do not consider them to be equivalent to Medicaid.

We clarified the standards for eligibility for separate child health programs, including: (1) Clearly permitting self-declaration of citizenship; (2) prohibiting durational residency requirements; (3) prohibiting lifetime caps or other time limits on eligibility; (4) permitting 12 months of continuous eligibility; and (5) permitting enrollment caps and waiting lists when approved as part of the State plan. In addition, we have specifically required States to implement standards for conducting eligibility determinations and a process that does not exceed 45 days (excluding days during which the application has been suspended).

The rule provides further clarification of the issues surrounding children of public employees, children in IMDs and children who are inmates of public institutions. For example, we clarified that the children of public employees are eligible only if the employer contribution under a State health benefits plan is no more than a nominal contribution of $10 per family, per month. We also modified the definition of “State health benefits plan” to exclude separately run county, city, or other public agency plans that receive no State contribution toward the cost of coverage and in which no State employees participate.

The final rule also further clarifies the requirements for treatment of children found to be potentially eligible for Medicaid after applying for coverage under a separate child health program. In order to ensure the effectiveness of the screening mechanisms, States are required to establish a system for monitoring the screen and enroll process. Finally, the rule lays out procedures for States that opt to provide presumptive eligibility for the separate child health program while the application and eligibility determination process is underway.

• Subpart D—Coverage and Benefits

The proposed rule provided for some flexibility for States in keeping the SCHIP benefit package current. A State using the benchmark benefit package option is not required to submit an amendment each time the benchmark package changes, as long as it continues to offer the same benefits covered under the approved State plan. However, States must submit an amendment to their State plan any time the benefits offered to enrollees change. If the change in benefits is intended to conform the separate State benefit package to the benchmark coverage, then the benefit package remains benchmark coverage. But if the change in benefits causes the State-offered benefits to differ from the benchmark coverage, then the benefits must be reclassified as benchmark equivalent or one of the other benefit package options.

The proposed rule included the requirement that States use the “prudent layperson standard” in defining coverage for emergency services under SCHIP. The proposed rule also required use of the American Committee on Immunization Practices (ACIP) schedule for age-appropriate immunizations.

The final rule retains all of the same provisions as included in the proposed rule. In addition, for purposes of clarity, we have moved a provision formerly found in Subpart G, Strategic Planning, Reporting, and Evaluation into this Subpart. The provision, entitled “State assurance of access to care and procedures to assure quality and appropriateness of care” includes the requirements for assuring access to covered services, including emergency services, well-baby, well-child and well-adolescent care, and age appropriate immunizations. This provision also requires States to assure appropriate and timely procedures to monitor and treat enrollees with chronic, complex, or serious medical conditions, including access to an adequate number of visits to specialists experienced in treating the specific medical condition. Finally, this provision requires States to assure decisions related to the provision of health services are completed within 14 days of the request for the service, in accordance with the medical needs of the child.

• Subpart E—Enrollee Financial Responsibilities

Title XXI permits States to impose cost sharing on enrollees in separate child health programs, but places a 5 percent cap on the amount of cost-sharing expenditures for families with incomes greater than 150 percent of the Federal Poverty Level (FPL). In an attempt to preserve State flexibility, we proposed to give States the option to use either gross or net family income when calculating this cost-sharing cap for families. In addition, we proposed to place a limit of 2.5 percent on cost sharing for families with incomes at or below 150 percent of the FPL, in order to ensure that those families with lower incomes will not be required to spend the same percentage of their income on cost sharing as those with higher incomes. Many commenters supported the need for this distinction, given the more limited amount of disposable income in such families. Under the proposed rule, States also had the option to apply medical costs for non-covered or non-eligible family members toward the cumulative maximum cap.

We proposed that States must have a process in place that will protect enrollees by ensuring an opportunity to pay past due cost-sharing amount before they can be disenrolled from the program for failure to pay cost sharing. We suggested that States should look for a pattern of nonpayment, and provide clear notice and opportunities for late payment before taking action to disenroll.

Finally, title XXI includes provisions to ensure enrollment and access to health care services for American Indian and Alaska Native (AI/AN) children. The proposed regulation incorporated our interpretation that in light of the unique Federal relationship with tribal governments, cost-sharing requirements for individuals who are members of a Federally recognized tribe are not consistent with this statutory requirement.

The final rule clarifies that States must provide to the family of each individual SCHIP enrollee, the cumulative cost-sharing maximum amount for that year. In addition, this subpart confirms that the State plan must clearly describe a State's cost-sharing policy in terms of which children will be subject to cost sharing, the consequences for enrollees who do not pay a charge, and the disenrollment protections provided to enrollees in the event that they do not pay the cost sharing. States must also describe the methodology to ensure that families do not exceed the cumulative cost-sharing maximum and assure that families will not be held liable for cost-sharing amounts, beyond the copayment amounts in the State plan, for emergency services provided outside of an enrollee's managed care network.

The final rule confirms the protections included in the proposed rule related to AI/AN children and clarifies that States may use self-declaration of tribal membership for identifying AI/AN children in order to facilitate implementation of the cost-sharing exemption.

The final rule continues to require that States may not impose more than one type of cost sharing on a service; and that States may only impose one copayment based on the total cost ofservices furnished during one office visit.

Finally, States must provide enrollees with an opportunity to show that their family income has declined before being disenrolled for failure to pay cost sharing, because the child may have become eligible for a category with lower or no cost sharing if family income has declined. States must also provide enrollees with an opportunity for an impartial review to address disenrollment from the program for this reason (see discussion of new Subpart K, Applicant and Enrollee Protections).

• Subpart G—Strategic Planning, Reporting and Evaluation

The proposed regulation included provisions intended to ensure compliance with the statute and the elements of the State's approved title XXI plan. This subpart included the essential elements of strategic objectives and performance measures to assist the States and the Federal government in assessing the effectiveness of the SCHIP program in increasing the number of children with health insurance, and an assessment of the quality of and access to needed health care services.

The proposed rule also outlined the quarterly statistical reporting requirements and the required elements of States annual reports and the March 31, 2000 SCHIP evaluation.

The final rule confirms these requirements and further describes data elements to be reported by the States, including data on gender, race, ethnicity, and primary language. The gender, race and ethnicity data will be required in the State's quarterly statistical enrollment reports; and the annual reports will include a description of data regarding the primary language of SCHIP enrollees. In addition, the annual reports will include an updated budget for a 3-year period, including any changes in the source of the non-Federal share of State plan expenditures. The annual reports must also include description of the State's current income eligibility standards and methodologies.

Finally, the final rule notes the Secretary's intention to develop, with input from States, academic and intergovernmental organizations, a core set of national performance goals and measures. When developed, States will also be required to report on these measures in their annual reports.

• Subpart H—Substitution of Coverage

The proposed rule set forth requirements for ensuring that States have in place mechanisms aimed at preventing substitution of public coverage for private group coverage. With respect to coverage provided directly through SCHIP, the preamble included a description of HCFA's three-tiered policy to apply increased scrutiny to States' substitution prevention strategies at higher incomes. For coverage provided through premium assistance for employers' group health plans, the proposed rule set forth specific requirements for a six-month period of uninsurance and a minimum 60 percent employer premium contribution.

Due to a general lack of evidence of the existence of substitution below 200 percent of the FPL and the significant number of comments received on this subpart, we have revised the final rule to clarify our policy related to substitution. The preamble to the final rule clarifies that for coverage provided other than through premium assistance programs, we will no longer require a substitution prevention strategy for families with incomes below 250 percent of the FPL. Instead, States will be required to monitor the occurrence of substitution below 200 percent of the FPL. Between 200 and 250 percent of the FPL, we will work with States to develop procedures, in addition to monitoring, to prevent substitution that would be implemented in the event that an unacceptable level of substitution is identified. Above 250 percent of the FPL, States must have a substitution prevention mechanism in place, however we encourage States to use other strategies than waiting periods.

For States wishing to utilize premium assistance programs, we have revised the final rule to provide additional flexibility. While we have retained the 6-month waiting period without group health plan coverage, States have flexibility to include a number of exceptions for circumstances such as involuntary loss of coverage, economic hardship, and change to employment that does not offer dependent coverage. We have also removed the requirement for States to demonstrate an employer contribution of at least 60 percent when providing coverage through premium assistance programs. Rather, we have clarified that States must demonstrate cost-effectiveness of their proposals by identifying a minimum contribution level and providing supporting data to show that the level is representative of the employer-sponsored insurance market in their State.

Finally, the final rule provides that the Secretary has discretion to reduce or waive the minimum period without private group health plan coverage.

• Subpart I—Program Integrity

The provisions in this subpart are intended to preserve program integrity in the State Children's Health Insurance Program. We proposed that States must have fraud and abuse protections in place, but provided flexibility to States in developing program integrity protections for separate child health programs. States with separate child health programs may utilize systems already existing for Medicaid, but are not required to do so. In addition, we proposed that States have additional flexibility in setting procurement standards more broadly than are available under Medicaid. We proposed that States may choose to base payment rates on public and/or private rates for comparable services for comparable populations, and where appropriate, establish higher rates in order to ensure sufficient provider participation and access.

Finally, the proposed regulation included various enrollee protections consistent with the President's directive regarding the Consumer Bill of Rights and Responsibilities, including provisions regarding grievances and privacy protections. In response to public comment about the need for consistency of provisions throughout the final rule, we have moved the overview of the enrollee protections to the preamble of this final rule, but have removed it from the final regulation text, as it repeated the protections included throughout the proposed rule. The discussion of enrollee protections is now found in subpart K—Applicant and Enrollee Protections.

The final rule confirms the significance of maintaining program integrity in SCHIP and clarifies issues related to the certification of data that determines payment and the development of actuarially sound payment rates. It notes that States should base payment rates on public and/or private rates for comparable services for comparable populations, consistent with the principles of actuarial soundness. We have also moved the subsection formerly entitled, “Grievances and appeals” to the new Subpart K, where these requirements are retained and elaborated upon.

Finally, the rule confirms the importance of maintaining the integrity of professional advice to enrollees by requiring compliance with the provisions of the final Medicare+Choice rule that prohibit interference with health care professionals' advice to enrollees; require that professionals provide information about treatment options in an appropriate manner; limitsphysician incentive plans; and provides requirements related to information disclosure related to physician incentive plans.

• Subpart J—Waivers

The proposed rule noted the requirements for obtaining a waiver to provide coverage through a community-based delivery system and discussed the circumstances under which a State may obtain a waiver in order to provide title XXI coverage to entire families. We proposed that in order to qualify for a family coverage waiver, the State must meet several requirements, including a requirement that the proposal be cost-effective.

In the final rule, we have clarified that the provisions of this subpart apply to separate child health programs. The provisions apply to Medicaid expansions only in cases where the State files claims for administrative costs under title XXI and seeks a waiver of limitations on such claims for coverage under a community-based health delivery system. We have clarified that HCFA will review requests for waivers under this subpart using the same time frames (the 90-day review clock) as those used for the review of State plan amendments under SCHIP. In addition, in response to comments received on this subpart, we have extended the approval period for the waivers to provide coverage through a community based delivery system from two years to three years in an attempt to better align with the period of availability for SCHIP allotments.

With regard to the family coverage waiver, the final rule clarifies that when applying the cost-effectiveness test, States must assess cost-effectiveness in its initial request for a waiver, and then annually. States may do the assessment either on a case-by-case basis or in the aggregate.

• Subpart K—Applicant and Enrollee Protections

The proposed rule emphasized the importance of enrollee protections by including many of the elements of the Consumer Bill of Rights and Responsibilities throughout the rule. In addition, an overview of these protections was presented in Subpart I—Program Integrity and Beneficiary Protections. We received several comments on our decision to implement the CBRR through this regulation. While we have retained the protections included in the proposed rule in the appropriate location as related to the issue, we have attempted to clarify the required protections by creating a new subpart dedicated to privacy and a process for review of certain eligibility and health services matters, Subpart K—Applicant and Enrollee Protections.

We have included more specific requirements than those that were included in Subpart I of the proposed rule and will require the State plan to include a description of the State's process for review and resolution of eligibility and enrollment matters such as denial or failure to make a timely determination of eligibility, and suspension or termination of enrollment, including disenrollment for failure to pay cost sharing. States must also provide enrollees with an opportunity for external review of health services matters, such as delay, denial, reduction, suspension or termination of health services, in whole or in part; and the failure to approve, furnish, or provide payment for health services in a timely manner. Exceptions to these requirements can be made in the event that the sole basis for such a decision is a change in the State plan or a change in Federal or State law that affects all or a group of applicants or enrollees without regard to their individual circumstances.

The final rule lays out requirements for the core elements of review of eligibility or health services matters, and requires that the reviews be impartial, conducted by a person or entity that has not been directly involved or responsible for the matter under review. The rule also establishes a 90-day time frame within which external reviews (or a combination of an internal and an external review) must be completed. States should take into consideration the medical needs of the patient when conducting the reviews and provide expedited time frames if an enrollee's physician determines that a longer time frame could seriously jeopardize the enrollees life, health or ability to attain or regain maximum function. If the enrollee has access to both internal and external review, each level of expedited review may take no more than 72 hours.

The final rule requires States to provide continuation of enrollment pending the completion of review of a suspension or termination of enrollment, including disenrollment for failure to pay cost sharing. States must also provide enrollees with timely written notice of any determinations subject to review including the reasons for the determination, an explanation of applicable rights to review, the time frames for review, and circumstances under which enrollment may continue pending a review.

Finally, the rule provides an exception for States that operate premium assistance programs under SCHIP. If the State utilizes a premium assistance program that does not meet the requirements for review under this Subpart, the State must give applicants and enrollees the option to enroll in the non-premium assistance program in the State. States must provide this option at initial enrollment and at each renewal of eligibility.

• Expanded Coverage of Children under Medicaid and Medicaid Coordination.

In this section we set forth our changes to the Medicaid regulations that allow for expanded coverage of children under title XIX. Although these regulations are related to title XXI and SCHIP, they are changes to the Medicaid program and all existing Medicaid regulations also apply. We set forth requirements related to presumptive eligibility for children, the enhanced FMAP (Federal medical assistance percentage) rate for children, and the new group of optional targeted low-income children established by the statute. The presumptive eligibility provisions have been clarified in this final rule to lay out specific notification requirements and establish procedures for making presumptive eligibility determinations and expands the definition of “qualified entity” in accordance with the Benefits Improvement and Protection Act of 2000 (BIPA). Finally, the rule establishes consistent coordination requirements between Medicaid and SCHIP.

2. General Comments

In this section, we have summarized and responded to general public comments on the SCHIP programmatic regulation. These comments relate to the program or the proposed rule as a whole and not to any particular provision of the proposed rule. All other public comments are addressed below in the context of the relevant subpart.

Comment: We received a great number of comments discussing the issue of providing SCHIP coverage through premium assistance programs. Many commenters noted the difficulty that States would have in requiring employer plans to meet the proposed requirements. Many commenters argued that the proposed rule imposed too many requirements on SCHIP coverage obtained through employer-sponsored insurance and that the proposed provisions would stifle State innovation in utilizing such insurance.

Response: At the time of publication of the proposed rule, the experience with premium assistance programs in SCHIP had been limited to only a few States. Therefore, the proposedregulation did not include a great deal of specificity regarding the regulation's applicability to premium assistance models. We have attempted to provide States with flexibility, while ensuring that States meet their statutory obligation to all SCHIP enrollees regardless of the insurance product being provided. Further, it would not be consistent with the SCHIP statute to exempt certain enrollees from the protections established by law, simply because of the delivery model. However, we also recognize the value and the increased potential for reaching children associated with interaction with the employer-based insurance market. Thus, while we will ensure compliance with the protections set forth in this final rule, we look forward to working closely with States to help in the development and approval of proposals that utilize premium assistance programs. As noted in the overview section, we have provided some additional flexibility in subpart H, Substitution, with respect to premium assistance programs that we hope will facilitate increased use of premium assistance programs in SCHIP. We have also provided some flexibility with regard to certain enrollee protections in subpart K.

Comment: One commenter noted that there is an inequity in funding that disadvantages States that expanded eligibility prior to March 31, 1997. Another commenter indicted that it is difficult for States that had expanded Medicaid to high levels prior to March 31, 1997 to access SCHIP funds and suggested that States be allowed to use SCHIP funds to subsidize employer-sponsored insurance.

Response: We recognize the inequities that have been caused by the “maintenance of effort” provision in the SCHIP statute, which holds States to the current eligibility levels in effect on March 31, 1997, and we applaud States that were progressive in expanding their Medicaid programs through section 1115 demonstrations and through the flexibility provided under section 1902(r)(2) and section 1931 of the statute. However, the maintenance of effort provision in the SCHIP statute was put in place specifically to ensure that States did not roll back the eligibility and benefits standards that were in place prior to the existence of SCHIP, and to encourage further expansion in implementing States' SCHIP programs.

Comment: Several commenters asserted that the proposed regulations were overly prescriptive, limit State flexibility, and raise program administrative costs. Several commenters specifically complained that the proposed regulations appeared to push States toward Medicaid or Medicaid-like programs. Some commenters asserted that the overall approach directly contradicted Executive Order 13132 on Federalism. Some argued that the regulations should be limited to areas Congress specifically required the Secretary to address in regulations, the administrative review process for State plans, or to clarification of essential terms. While some commenters recognized the need for federal guidance, they supported the inclusion of such guidance in the preamble and other guidance documents rather than in the regulation text.

Response: In developing the proposed and final regulations, we have taken great care to try to balance the need to ensure that SCHIP will provide the full intended benefits to uninsured, low-income children with the goal of retaining as much State flexibility as possible. HCFA has tried to administer the program and develop policies in a manner that gives States a full opportunity to develop programs that met local needs, whether through a Medicaid expansion or a separate child health program.

To make it possible for States to develop and implement their programs, from the time of enactment of the SCHIP program, HCFA has worked with States to disseminate as much information as possible, as quickly as possible. In the first three months of the program's existence, we released over 100 answers to frequently asked questions and issued several policy guidance letters. We continue to take into consideration the changing needs of States. The programs that States developed vary in scope, delivery system and many other respects. The diversity and innovation that has been displayed is an indication that State flexibility does indeed exist.

In addition, we consulted with State and local officials in the course of the design and review stages of State proposals, and many of the policies found in the proposed and this final rule are a direct result of these discussions and negotiations with the States. To the extent consistent with the objectives of the statute, to obtain substantial health care coverage for uninsured low-income children in an effective and efficient manner, we have endeavored to preserve State options in implementing their programs.

We developed these final regulations with the goal of providing a balanced view of both Medicaid expansions and separate child health programs. We made careful determinations as to whether each subpart should be applicable to separate child health programs and Medicaid expansions, or only to separate programs. In doing this, we have attempted to maximize flexibility and avoid the need for duplication of effort, while at the same time recognizing the basic differences between the two approaches.

We believe our considerations, and the consultative process we followed during the State plan review process, fully comported with the requirements of Executive Order 13132, and the final regulations contain the framework necessary for States to achieve the statutory requirements and objectives set forth by Congress.

Comment: Several commenters were concerned that the proposed regulations would narrow available State options, with particular mention of barriers to private sector models, and impose additional burdensome requirements on States. Some commenters were concerned that the proposed regulations would require administrative costs that would be a difficult financial burden for a small separate child health program.

Response: We recognize the commenters' concern and have tried to keep potential administrative burden in mind in developing these regulations. Some administrative investment, however, is necessary to ensure proper delivery of health care coverage to uninsured low-income children, and to provide enrollees with protections to ensure that such coverage is furnished in an effective and efficient manner that is coordinated with other sources of health benefits coverage for children.

3. Table of Contents for Part 457

We set forth the new provisions for the State Children's Health Insurance Program in regulations at 42 CFR part 457, subchapter D. We note that the following table of contents is for all of part 457 and lists some subparts which have been reserved for provisions set forth in the May 24, 2000 final financial regulation (65 FR 33616).

Subchapter D—State Children's Health Insurance Program (SCHIP)

Part 457—allotments and grants to states

Subpart a—introduction; state plans for child health insurance programs and outreach strategies

Sec. 457.1 457.2 457.10 457.30 457.40 457.50 457.60 457.65 457.70 457.80 457.90 457.110 457.120 457.125 457.130 457.135 457.140 457.150 457.160 457.170

Subpart b—[reserved]

Subpart c—state plan requirements: eligibility, screening, applications, and enrollment

457.300 457.301 457.305 457.310 457.320 457.340 457.350 457.353 457.355 457.380

Subpart d—state plan requirements: coverage and benefits

457.401 457.402 457.410 457.420 457.430 457.431 457.440 457.450 457.470 457.475 457.480 457.490 457.495

Subpart e—state plan requirements: enrollee financial responsibilities

457.500 457.505 457.510 457.515 457.520 457.525 457.530 457.535 457.540 457.555 457.560 457.570

Subpart f—[reserved]

Subpart g—strategic planning, reporting, and evaluation

457.700 457.710 457.720 457.740 457.750

Subpart h—substitution of coverage

457.800 457.805 457.810

Subpart i—program integrity

457.900 457.902 457.910 457.915 457.925 457.930 457.935 457.940 457.945 457.950 457.955 457.960 457.965 457.980 457.985

Subpart j—allowable waivers: general provisions

457.1000 457.1003 457.1005 457.1010 457.1015

Subpart k—state plan requirements: applicant and enrollee protections

457.1100 457.1110 457.1120 457.1130 457.1140 457.1150 457.1160 457.1170 457.1180 457.1190

B. Subpart A—Introduction; State Plans for Child Health Insurance Programs and Outreach Strategies

1. Program Description (§ 457.1)

In proposed § 457.1, we set forth a description of the State Children's Health Insurance Program. Title XXI of the Social Security Act, enacted in 1997 by the BBA, authorizes Federal grants to States for provision of child health assistance to uninsured, low-income children. The program is jointly financed by the Federal and State governments and administered by the States. Within broad Federal rules, each State decides eligible groups, types and ranges of services, payment levels for benefit coverage, and administrative and operating procedures. We received no comments on this section and have retained the proposed language in this final rule.

2. Basis and Scope of Subchapter D (§ 457.2)

Proposed § 457.2 set forth the basis and scope of subchapter D. This subchapter implements title XXI of the Act, which authorizes Federal grants to States for the provision of child health assistance to uninsured, low-income children.

The regulations in subchapter D set forth State plan requirements, standards, procedures, and conditions for obtaining Federal financial participation (FFP) to enable States to provide health benefit coverage to targeted low-income children, as defined in § 457.310. We received no comments on this section and have retained the proposed language in this final rule.

3. Definitions and Use of Terms (§ 457.10)

This subpart includes the definitions relevant specifically to the State Children's Health Insurance Program under title XXI. In this subpart, we defined key terms that are specified in the statute or frequently used in this regulation. We note that those terms that are specific to certain subparts of thisregulation are defined at the opening of each subpart, however, all the terms are listed here. Because of the unique Federal-State relationship that is the basis for this program and because of our commitment to State flexibility, States have the discretion to define many terms.

We proposed the following definitions:

American Indian/Alaska Native (AI/AN) means (1) a member of a Federally recognized Indian tribe, band, or group or a descendant in the first or second degree, of any such member; (2) an Eskimo or Aleut or other Alaska Native enrolled by the Secretary of the Interior pursuant to the Alaska Native Claims Settlement Act 43 U.S.C. 1601et seq;(3) a person who is considered by the Secretary of the Interior to be an Indian for any purpose; (4) a person who is determined to be an Indian under regulations promulgated by the Secretary.

Child means an individual under the age of 19.

Child health assistance has the meaning assigned in § 457.402.

State Children's Health Insurance Program (SCHIP) means a program established and administered by a State, but jointly funded with the Federal government to provide child health assistance to uninsured, low-income children through a separate child health program, a Medicaid expansion program, or a combination of both.

Combination program means a program under which a State provides child health assistance through both a Medicaid expansion program and a separate child health program.

Contractor has the meaning assigned in § 457.902.

Cost-effective has the meaning assigned in § 457.1015.

Creditable health coverage has the meaning given the term “creditable coverage” at 45 CFR 146.113. Under this definition, the term means the coverage of an individual under any of the following:

—A group health plan (as defined in 45 CFR 144.103).

—Health insurance coverage (as defined in 45 CFR 144.103).

—Part A or part B of title XVIII of the Act (Medicare).

—Title XIX of the Act, other than coverage consisting solely of benefits under section 1928 (the program for distribution of pediatric vaccines).

—Chapter 55 of title 10, United States Code (medical and dental care for members and certain former members of the uniformed services, and for their dependents).

—A medical care program of the Indian Health Service or of a tribal organization.

—A State health benefits risk pool (as defined in 45 CFR 146.113).

—A health plan offered under chapter 89 of title 5, United States Code (Federal Employees Health Benefits Program).

—A public health plan. (For purposes of this section, a public health plan means any plan established or maintained by a State, county, or other political subdivisions of a State that provides health insurance coverage to individuals who are enrolled in the plan.)

—A health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e)).

The term “creditable health coverage” does not include coverage consisting solely of coverage of excepted benefits including limited excepted benefits and non-coordinated benefits. (See 45 CFR 146.145)

Emergency medical condition has the meaning assigned at § 457.402.

Emergency services has the meaning assigned in § 457.402.

Employment with a public agency has the meaning assigned in § 457.301.

Family income means income as determined by the State for a family as defined by the State.

Federal fiscal year starts on the first day of October each year and ends on the last day of September.

Fee-for-service entity has the meaning assigned in § 457.902.

Grievance has the meaning assigned in § 457.902.

Group health insurance coverage means health insurance coverage offered in connection with a group health plan as defined at 45 CFR 144.103.

Group health plan means an employee welfare benefit plan, to the extent that the plan provides medical care as defined in section 2791(a)(2) of the PHS Act (including items and services paid for as medical care) to employees or their dependents directly (as defined under the terms of the plan), or through insurance, reimbursement, or otherwise, as defined at 45 CFR 144.103.

Health benefits coverage has the meaning assigned in § 457.402.

Health maintenance organization (HMO) plan has the meaning assigned in § 457.420.

Joint application has the meaning assigned in § 457.301.

Legal obligation has the meaning assigned in § 457.560.

Low-income child means a child whose family income is at or below 200 percent of the poverty line for the size family involved.

Managed care entity (MCE) has the meaning assigned in § 457.902.

Medicaid applicable income level means, with respect to a child, the effective income level (expressed as a percentage of the poverty line) that has been specified under the State plan under title XIX (including for these purposes, a section 1115 waiver authorized by the Secretary or under the authority of section 1902(r)(2)), as of March 31, 1997, for the child to be eligible for medical assistance under either section 1902(l)(2) or 1905(n)(2) of the Act.

Medicaid expansion program means a program where a State receives Federal funding at the enhanced matching rate available for expanding eligibility to targeted low-income children.

Post-stabilization services has the meaning assigned in § 457.402.

Poverty line/Federal poverty level means the poverty guidelines updated annually in the Federal Register by the U.S. Department of Health and Human Services under authority of 42 U.S.C. 9902(2).

Preexisting condition exclusion has the meaning assigned at 45 CFR 144.103, which provides that the term means a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the first day of coverage, whether or not any medical advice, diagnosis, care or treatment was recommended or received before that day. A preexisting condition exclusion includes any exclusion applicable to an individual as a result of information that is obtained relating to an individual's health status before the individual's first day of coverage, such as a condition identified as a result of a pre-enrollment questionnaire or physical examination given to the individual, or review of medical records relating to the pre-enrollment period.

Premium assistance for employer-sponsored group health plans means State payment of part or all of premiums for group health plan or group health insurance coverage of an eligible child or children.

Public agency has the meaning assigned in § 457.301.

Separate child health program means a program under which a State receives Federal funding from its title XXI allotment under an approved plan that obtains child health assistance through obtaining coverage that meets the requirements of section 2103 of the Act.

State means all States, the District of Columbia, Puerto Rico, the U.S.Virgin Islands, Guam, American Samoa and the Northern Mariana Islands.

State health benefits plan has the meaning assigned in § 457.301.

State plan means the approved or pending title XXI State child health plan.

State program integrity unit has the meaning assigned in § 457.902.

Targeted low-income child has the meaning assigned in § 457.310.

Uncovered child means a child who does not have creditable health coverage.

Well-baby and well-child care services means regular or preventive diagnostic and treatment services necessary to ensure the health of babies and children as defined by the State. For purposes of cost sharing, the term has the meaning assigned at § 457.520.

We note that comments concerning definitions that are specific to certain subparts are discussed at the opening of those subparts. We received the following comments on the terms defined in this section:

Comment: We received a comment suggesting that we use the terms “SCHIP”, “Medicaid expansion program” and “separate child health program” consistently throughout the regulation. The commenter noted that we repeatedly use the term “SCHIP” when it appears the term “separate child health program” is meant.

Response: We agree with the commenter and have revised the rule for clarity and consistency. Throughout this regulation, we use the terms “Medicaid expansion program” and “separate child health program” to refer to the different types of programs that States may establish under title XXI. These terms are defined at § 457.10. We use the term “SCHIP”, also defined at § 457.10, to refer to the State's title XXI program regardless of whether it is a Medicaid expansion program or a separate child health program.

Also for purposes of clarity and consistency, we have added definitions of the terms “applicant”, “enrollee”, “health care services”, and “uninsured or uncovered child” to the definitions section of the final rule. We felt that it was important to make clear both the distinctions and the similarities between these two groups of children for purposes of SCHIP (either individually or through action by family or other interested parties).

“Applicant” means a child who has filed an application (or who has had an application filed on his/her behalf) for health benefits coverage through SCHIP. A child is an applicant until the child receives coverage through SCHIP. An “enrollee” is a child who receives health benefits coverage through SCHIP. “Health care services” means any of the services, devices, supplies, therapies, or other items listed in § 457.402(a). “Uncovered child or uninsured child” means a child who does not have creditable health coverage.

We have added a few definitions related to presumptive eligibility under Subpart C, including “qualified entity”, “presumptive income standard” and “period of presumptive eligibility”. The Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) expanded the list of entities specifically eligible to make presumptive eligibility determinations and extended the provision related to presumptive eligibility for children under Medicaid to separate child health programs.

Finally, we have added the definition of “health services initiatives” to the overall definitions section because it is used throughout the regulation. This term was previously discussed only in Subpart J, in relation to the waiver authority to provide services through community-based delivery systems.

Comment: One commenter indicated that the definition of AI/AN should include a reference to the standards used by the Secretary to define an AI/AN. The commenter agreed with our use of section 4(c) of the Indian Health Care Improvement Act, 25 U.S.C. 1603(c) to define AI/AN. The commenter believes our proposed definition will assist States in meeting requirements regarding the AI/AN population.

Another commenter indicated that our use of the definition of AI/AN set forth in the Indian Health Care Improvement Act is appropriate for purposes of the premium and cost sharing exclusion. However, the commenter notes that the proposed definition of AI/AN set forth at § 457.10 is narrowed by the cost-sharing provisions at § 457.535, which specify that only American Indians and Alaska Natives who are members of a Federally recognized tribe are excluded from cost-sharing charges. The commenter believes that the definition of AI/AN at § 457.535 is more restrictive than that set forth in the Indian Health Care Improvement Act and has no basis in title XXI. The commenter believes that the definition at § 457.535 is also inconsistent with the proposed consultation provisions of § 457.125(a), which expressly requests that States consult with “Federally recognized tribes and other Indian tribes and organizations in the State * * *” The commenter asserted that there is little point in consulting with non-Federally recognized tribes about enrollment in SCHIP if the children of those tribes are not excluded from premiums and cost sharing.

Response: We have modified the definition of AI/AN, after discussion with IHS, to make the definition as consistent as possible with both the Indian Health Care Improvement Act (IHCIA) and the Indian Self Determination Act. The definition no longer includes descendants, in the first or second degree, of members of federally recognized tribes, and we have removed the reference in paragraph (4) to regulations to be promulgated by the Secretary. We believe that this definition is substantially equivalent to, and no more restrictive than, the definition in the IHCIA, but is consistent with the flexibility available under the Indian Self Determination Act. We have used this definition because it gives full weight to federally recognized government-to-government relationship between the federal government and tribal governments. We do not intend, however, to restrict the States' ability to engage in a wider scope of consultation in developing their programs.

Comment: One commenter indicated that the definition of “child” is inconsistent with their State's statute which considers children up to age 19 for child support purposes. Another commenter supports HCFA's definition of family income as it gives States the flexibility to define income and family.

Response: The definition of “child” was taken from section 2110(c) of the Act. With regard to the definition of family income, we appreciate the support and want to give States as much flexibility as possible when defining this aspect of their SCHIP programs.

Comment: We received a comment on the definition of premium assistance for employer-sponsored group health plans. The commenter states that according to the definition of this term at § 457.10, a State can pay all or part of the premium. The commenter notes that this definition appears to conflict with proposed § 457.810(b)(2)(i) and (ii) which require that an employer contribute 60 percent of the cost of the premium, or a lower amount if the State can show that the average contribution in the State is lower than 60 percent, as a protection against substitution of coverage.

Response: The commenter is correct. In order for the purchase of employer-sponsored coverage to be cost-effective in accordance with § 457.810(b)(2), it was our intent to say that the State can pay for all or part of the enrollee's share of the premium for group health plan coverage of an eligible child or children. It is unlikely that a State's payment ofall of the premium would meet the cost-effectiveness test. Accordingly, we have revised the definition of premium assistance for employer-sponsored group health plans to indicate that a State can pay for all or part of the enrollee's share of the premium.

It should also be noted that, in this final rule we have made some significant changes in the list of terms defined, in order to clarify terminology for health benefits coverage provided through a group health plan or group health coverage. We defined the term “premium assistance for employer-sponsored group health plans.” We also used the term “employer-sponsored group health plan” and “employer-sponsored group health plan coverage” throughout the proposed rule.

In hopes of simplifying discussions of our policy, we have elected to create a new term that is intended to be inclusive of all types of group health coverage. We no longer use the term “employer-sponsored” prior to references to group health plan or group health insurance coverage in this final rule. We believe that the use of the term “employer-sponsored insurance” or “employer-sponsored group health plan” could unintentionally narrow the scope of permitted premium assistance programs and wanted to avoid that result. Under HIPAA, the term “group health plan” has a very specific legal meaning and refers to a broad array of coverage arrangements; it does not solely refer to health plans offered by a single employer. Therefore, we did not want to cause confusion around the possible scope of programs permitted under Title XXI by using the term “employer-sponsored” in connection with provisions relating to premium assistance programs and rather, refer to all of these types of programs accordingly.

Comment: One commenter suggested that HCFA include in the final rule the definition of “health services initiatives” set forth in the August 6, 1998 letter to State Health Officials. In the letter, the term is defined as “activities that protect the public health, protect the health of individuals or improve or promote a State's capacity to deliver public health services and/or strengthens resources needed to meet public health goals.”

Response: We agree with the commenter. We have added the definition of “health services initiatives” as set forth in the August 6, 1998 letter.

Comment: Commenters asserted that the definition of well-baby and well-child care for purposes of cost sharing (set forth at § 457.520) be used in three other sections of the regulation: Definitions and use of terms § 457.10; Child health assistance and other definitions § 457.402; and Health benefits coverage options § 457.410(b)(2). One commenter urged that our recognition in § 457.520 that preventive oral health care is part of well-baby and well-child care be extended to the definition of this term at §§ 457.10, 457.402, 457.410(b)(2). The commenter believes that the definition of well-baby and well-child care which includes preventive oral health care should not be treated simply as a category of services left to State discretion for definitional purposes. The commenter noted that the Medicaid program provides for a comprehensive set of services and screenings for oral health care services through EPSDT services. The commenter believes that a clearly defined set of well-baby and well-child care benefits is essential to ensuring a baseline of care in separate child health programs.

Response: EPSDT services are required to be provided to eligible Medicaid beneficiaries under the age of 21 and are defined at section 1905(r) of the Act. Title XXI does not contain the same type of definition for well-baby and well-child care provided under a separate child health program. Therefore, States have the flexibility to design health benefits packages that best fit their needs and resources. In addition, for States that have elected benchmark plans as their health benefits option, these plans may already include standards for furnishing well-baby and well-child care; and it would be inconsistent with the flexibility provided by the statute in this area, as well as cause confusion among plans and providers if we implemented another definition.

Although most separate child health plans do include some type of dental coverage, it is by no means common. Therefore, it is not appropriate to require these services as part of well-baby well-child care. If dental coverage is provided, however, it should be included as part of well-baby well-child care for purposes of cost sharing. Specifically, dental care can be viewed as the oral health equivalent of immunizations in that it can prevent most cavities and subsequent tooth loss, both of which are highly correlated to poverty and lack of access to dental care. Second, we found that the prevailing practice among State employee plans and large HMOs is to pay 100 percent for any routine preventive and diagnostic dental benefits offered for children. Therefore, consistent with section 2103(e)(2) of the Act “no cost-sharing on benefits for preventive services” cost sharing may not be applied to these services, if a State chooses to offer them under the State plan.

Comment: Commenters suggested including the word “adolescent” in the definition of well-baby and well-child care services. The commenters believe that we should focus on the unique health needs of adolescents, which make up approximately 39 percent of SCHIP eligible youth because their health needs differ from those of younger children. The commenters also urged HCFA to list specifically in the regulation medical sources that have guidelines for regular or preventive diagnostic and treatment services for infants, children and adolescents. These sources should include the American Academy of Pediatrics' “Guidelines for Health Supervision of Infants, Children and Adolescents,” the American Medical Association's “Guidelines for Adolescent Preventive Services,” and the American College of Obstetricians and Gynecologists' “Primary and Preventive Health Care for Female Adolescents.”

Response: We have not adopted this suggestion. The definition of child for purposes of SCHIP at § 457.10 and section 2110(c)(1) of the Act indicates that a “child” is an “individual under the age of 19.” Adolescents under age 19 are clearly included in this age group and therefore we have not included this term in referring to well-baby and well-child care. We encourage States to adopt one of the guidelines mentioned by the commenter, but we have not required adherence to a particular definition.

The commenters urged HCFA to list specifically in the regulation medical sources that have guidelines for regular or preventive diagnostic and treatment services for infants, children and adolescents. The examples of medical sources that are listed in the preamble are meant to serve as recommendations not requirements. The American Medical Association's “Guidelines for Adolescent Preventive Services,” is an acceptable medical standard of practice for adolescents and States may use this standard if they choose.

Comment: We received numerous comments on proposed § 457.402(b) and (c), which set forth the definitions of emergency medical condition and emergency services, respectively. Many commenters supported the use of the prudent layperson standard in defining emergency services. Several commenters encouraged HCFA to retain this language because some State Medicaid programs and managed care organizations are not in compliancewith the prudent layperson standard and have denied payment for emergency services because prior authorization was absent. The commenters recommended that HCFA closely monitor the States' programs and managed care organizations on this issue.

Response: We note the support for this provision. With respect to the definition of emergency services under a separate child health plan, States will need to review their contracts with managed care organizations and may need to revise their contracts in order to comply with this requirement. HCFA will monitor States for compliance with this requirement as described in § 457.40 of the final regulation.

Comment: One commenter stated that the required emergency care provisions may disqualify many employer plans. The commenter agreed that such policies can enhance access to emergency care. However, the commenter noted that States using premium assistance programs to subsidize employer-sponsored coverage lack control over emergency coverage. Unlike health plans with direct contracts to provide Medicaid or SCHIP services, requirements for employer-sponsored plans are set by State legislative mandate or dictated by the insurance market. If employer-sponsored plans do not adopt the prudent layperson standard or abandon pre-authorization for emergency care, their coverage may not qualify for SCHIP premium assistance, despite other elements that facilitate emergency care. The emergency care provisions could therefore pose a major barrier to using premium assistance programs for SCHIP purposes.

The commenter recommended that HCFA recognize that the emergency care requirements of the proposed regulations may exclude many valuable employer plans from SCHIP premium assistance programs. To facilitate the use of premium assistance and to reflect the flexibility provided by title XXI, the commenter suggests that HCFA should consider State approaches to ensuring access to emergency care on a case-by-case basis.

Response: We appreciate the recognition that the prudent layperson standard enhances access to emergency care. While we understand the commenter's concerns about the difficulty posed by these requirements if States seek to provide premium assistance for available group health plan coverage, we cannot permit States to deny emergency care to children covered through group health plans. While we encourage States to provide premium assistance for group health plan coverage, it is important that all SCHIP enrollees receive necessary emergency care. States will need to carefully review group health plans to determine whether the required emergency services provisions required by this regulation are in place. If they are not, the State must disqualify those plans from participation in the program or ensure that these requirements are met by providing coverage for emergency services through a wrap-around coverage package to supplement the group health plan coverage.

Comment: One commenter noted that the definition of emergency services should include the availability of necessary resources to evaluate and treat illness and injury.

Response: We have revised the definition of emergency services to clarify the scope of such services. Because the terms “emergency medical condition” and “emergency services” are used throughout this final regulation, we have moved the definitions for these terms to § 457.10. Section 457.10 defines “emergency services,” in part, as services that are “needed to evaluate or stabilize an emergency medical condition.” “Emergency medical condition” is defined as a medical condition manifesting itself by acute symptoms of sufficient severity such that the absence of immediate medical attention could result in: serious jeopardy to the health of the individual or, in the case of a pregnant woman, the health of a woman or her unborn child; serious impairment of bodily function; or serious dysfunction of any bodily organ or part. Section 457.495 requires that States describe in their State plan the methods they use to assure the quality and appropriateness of care and access to services covered under the plan. Specifically, States must assure access to emergency services. We are not including requirements for State monitoring of such services in the definition because we address such monitoring separately at § 457.495. Compliance with that section includes an assurance that enrollees have access to required emergency services.

Comment: One commenter referenced comments on the proposed Medicaid managed care rules that concerned consistency with Emergency Medical Treatment and Active Labor Act (EMTALA) requirements. The commenter suggested HCFA should coordinate its efforts to enforce relevant requirements for coverage of emergency services with EMTALA enforcement, and should work with OIG, State Medicaid agencies, health plans, and children's health programs to protect Medicare, Medicaid, and SCHIP enrollees.

Response: The comments submitted on the Medicaid managed care regulation are beyond the scope of the proposed rule. Responses to comments received on the Medicaid managed care proposed rule will be addressed in the final publication of that regulation.

With respect to the issue of consistent Federal rules, we are mindful of other definitions of emergency services and have attempted to reconcile our approach with other approaches to the extent permitted by the statute. As for coordination of enforcement efforts, HCFA will monitor the operation of State plans as described in § 457.40 of this final regulation and work with States and other Federal agencies to the extent possible in enforcing the requirements relating to coverage of emergency services.

Comment: One commenter mentioned the need to provide for appropriate payment to hospitals for services provided within the scope of the hospital's obligations under EMTALA. Hospitals feel that if the government requires certain medical screening and other stabilizing treatment, the government should also address how hospitals will be paid for these services. They also noted that obtaining payment for services covered under the prudent layperson standard will help to address the financial burden borne by hospitals.

Response: We refer the commenter to § 457.940 for information on payment rates under separate child health plans. We encourage States to ensure that provider payments are adequate to promote an adequate level of provider access and provider participation and the appropriate provision of services.

Comment: One commenter noted that freestanding urgent care facilities must have the capability to identify children with emergency conditions, stabilize them, and provide timely access to further necessary care. The commenter also stated that urgent care facilities must have appropriate pediatric equipment and staff trained and experienced to provide critical support until patients are transferred for definitive care. In addition, the commenter noted that it is necessary for urgent care facilities to have prearranged access to comprehensive emergency services through transfer and transport agreements to which both facilities adhere. Available and appropriate modes of transport should be identified in advance.

The commenter also noted that after-hours urgent care clinics used as a resource for pediatric urgent care, should solicit help from the pediatricprofessional community. Moreover, in this commenter's view, pediatricians who are prepared to assist in the stabilization and management of critically ill and injured children should be accessible. Pediatricians responsible for managing the health care of children may occasionally need to use the resource of urgent care facilities after hours. When such clinics are recommended to patients, pediatricians should be certain that the urgent care center is prepared to stabilize and manage critically ill and injured children.

Response: As noted earlier, under § 457.495 of this final regulation, States must assure appropriateness of care and access to emergency services. A State has flexibility to determine the providers who furnish services, including emergency services. However, a State using free-standing or urgent care facilities as providers under its SCHIP plan for the delivery of emergency services, must meet the requirements of § 457.495 in doing so.

As far as the suggestion that available and appropriate modes of transport be identified in advance, we encourage States and urgent care providers to have arrangements to ensure that transportation is available to appropriate facilities; however the terms of such arrangements are left to States' discretion.

Comment: One commenter is pleased with the guaranteed access to emergency services without prior authorization; however, the commenter was concerned about what happens in a State that provides for no mental health coverage in its State plan.

Response: Under a separate child health program, States are given flexibility, within the confines of the health benefits coverage options outlined in § 457.410, to design their benefit packages. There is no requirement for a State to provide mental health services under its State plan unless the health benefits coverage option selected by the State includes those services. However, we encourage States to provide coverage for mental health services. In addition, we note that emergency mental health services that meet the prudent layperson definition of “emergency medical condition” must be available regardless of whether mental health services are covered under the separate child health program.

Comment: Three commenters indicated that children who were covered by section 1115 demonstration projects with a limited benefit package should not be considered to have been recipients of Medicaid. The commenters urged HCFA to provide clarification on the treatment of children eligible for Medicaid under a section 1115 demonstration project that limited eligibility or provided a limited range of services and the availability of enhanced matching for such children.

Response: We agree with the general principle expressed by the commenters that it would not further the purpose of title XXI to exclude from children who were eligible only under a section 1115 demonstration project that was significantly limited in scope and, therefore, was not generally comparable with traditional Medicaid coverage.

In regard to the definition of “targeted low income child” at section 2110(b)(1)(C) of the Act, children are excluded from coverage in a separate child health program only when they are found eligible for Medicaid. These comments are relevant, however, the interpretation of the general condition set forth at section 2105(d)(1) of the Act which was implemented by the regulatory provision at 42 CFR 457.622(b)(5), contained in the financial rule published May 24, 2000 (65 FR 33616). That provision merely codified section 2105(d)(1) into regulations without interpretation. In addition, the factors discussed by the commenters affect how we look at “Medicaid applicable income level” which is part of the financial need standard that a targeted low-income child must meet.

We have added an additional paragraph to § 457.310 that clarifies that policies of the State's title XIX plan do not include statewide section 1115 demonstration projects that covered an expanded group of eligible children but that either (i) did not provide inpatient hospital coverage, or (ii) did not impose a general time limit on coverage but did limit eligibility by both allowing only children who were previously enrolled in Medicaid to qualify and imposing premiums as a condition of participation in the demonstration.

We have excluded these types of demonstrations because they were particularly narrow in scope and not of the type intended to be encompassed by the reference to “Medicaid applicable income level” in section 2110(b)(4) of the Act. This provision ensures that separate child health programs serve low-income children whose income exceeds preexisting Medicaid income levels. However, we do not believe the provision was intended to preclude States from claiming enhanced matching funds for expanded coverage to children whose income is below the demonstration project eligibility thresholds in place as of March 31,1997, if those programs did not offer comprehensive coverage or limited eligibility to individuals who were previously enrolled in Medicaid. Our experience with SCHIP and our increased understanding of how this provision is affecting States' ability to expand coverage have led us to agree with the commenters that an overly broad interpretation of the provision is contrary to the primary purpose of the statute. We have clarified this provision in the final rule accordingly. As a result, children previously eligible for these types of demonstration projects may be included in a separate child health program as a “targeted low-income child.”

4. Basis, Scope, and Applicability of Subpart A (§ 457.30).

As proposed, this subpart interprets sections 2101(a) and (b), and 2102(a), and 2106, and 2107(c), (d) and (e) of title XXI of the Social Security Act and sets forth the related State plan requirements for a SCHIP program. It includes the requirements related to administration of the State program, the general requirement for a State plan and the process for Federal review of a State plan or plan amendment. This subpart applies to all States that seek to provide child health assistance through SCHIP.

We received no comments on this section and have therefore retained the regulation text language as proposed, except for technical changes.

5. State Program Administration (§ 457.40)

Consistent with section 2106(d)(1) of the Act, at § 457.40(a) we proposed that it is the State's responsibility to implement and conduct its program in accordance with the approved State plan and plan amendments, the requirements of title XXI and title XIX (as appropriate), and the regulations in chapter IV.

To ensure that the State is operating its program accordingly, we indicated that HCFA would review the operation of the program through on-site review or monitoring of State programs. At § 457.40(a), we also proposed that HCFA would monitor the operation of the approved State plan and plan amendments to ensure compliance with title XXI, title XIX (as appropriate) and the regulations in chapter IV. In the preamble to the proposed rule we discussed in detail the general goals for the monitoring provisions as well as expected outcomes of monitoring. We noted that the review process and the implications of noncompliance are specifically addressed in § 457.200, which was set forth in the May 24, 2000final financial regulation, HCFA-2114-F. (65 FR 33616)

To ensure involvement in and commitment to the program at the highest level of State government, we proposed in § 457.40(b) to require that the State plan and plan amendments be signed by the Governor or by an individual who has been delegated such authority by the Governor. This individual could be the Secretary of Health, the SCHIP Administrator, the Medicaid Director or any other individual who has been delegated authority by the Governor to submit the State plan or plan amendment. In order to facilitate communication between the appropriate State and HCFA staff, we proposed in § 457.40(c) to require that the State plan or plan amendment identify the State officials who are responsible for program administration and financial oversight.

We noted in the preamble that when the passage of State enabling legislation is required to implement a State plan, a State can submit its State plan application before the passage of the legislation. States must indicate in their application if such legislation is necessary and when it will be in place. At § 457.40(d), we proposed that the State plan must include an assurance that the State will not claim expenditures for child health assistance prior to the time that the State has legislative authority to operate the State plan or plan amendment as approved by HCFA.

Comment: One commenter recommended that § 457.40(a) be amended to clarify that States must operate State plans and plan amendments not only in accordance with titles XIX and XXI, but also in accordance with Federal civil rights laws, including title VI of the Civil Rights Act of 1964 and the Americans With Disabilities Act. Accordingly, the commenter recommended that HCFA also monitor the operation of the State plans and plan amendments for compliance with these laws.

Response: It is true that States must operate State plans and plan amendments in accordance with Federal civil rights laws, and we require in § 457.130 that a State provide an assurance in its State plan that it will comply with all applicable civil rights requirements. In addition, § 457.40(a) requires that States implement their programs in accordance with the regulations of this chapter, which include § 457.130. Therefore, we do not believe that it is necessary to amend § 457.40(a) to reference civil rights provisions. Moreover, while HCFA will monitor compliance with § 457.130, the Office for Civil Rights is the primary authority within the Department for monitoring programs and enforcing federal civil rights laws.

Comment: A few commenters suggested that States should be able to designate the program officials by title only, rather than by name, so that the State plan does not need to be amended when there is a staffing change. Another commenter suggested that a Governor or person designated by the Governor inform HCFA in writing of the names of the persons who are responsible for program administration and financial oversight. Another commenter requested that HCFA add a requirement that States identify in the State plan or in a subsequent State plan amendment the State officials who are responsible for providing data on children's enrollment in SCHIP and Medicaid.

Response: We agree with the commenters that it is unnecessary to require State plan amendments when there is a staffing change. Our goal of facilitating communication between the appropriate State staff and HCFA staff would be accomplished by the identification of program officials by position title. As proposed, the regulation text did not indicate that this practice would suffice, and the preamble had indicated that the names of the officials would be required. Therefore, we are revising § 457.40(c) to require that the State must identify, in the State plan or State plan amendment, the position title of the State officials who are responsible for program administration and financial oversight. While we agree with the importance of obtaining enrollment data on a timely basis, we do not believe that the State plan or plan amendments must include a list of program officials who are responsible for specific topics addressed in the State plan, including the official responsible for providing enrollment data. An interested party may contact the individual identified as the official responsible for program administration for specific information on the State program.

Comment: One commenter supported the provision of the proposed rule that prohibits the implementation of a State plan amendment until the amendment had been authorized through enabling legislation by the State legislature if such authorization is required. In this commenter's opinion, “this represents an important recognition of the ongoing role of the State legislature with the design and operation of SCHIP.”

Response: We appreciate the support of the commenter.

Comment: A few commenters expressed their support for the proposal stated in the preamble to conduct formal State reviews after the first anniversary of each State plan to ensure compliance with the requirements of titles XXI and XIX. More specifically, one commenter commended HCFA for including HRSA officials in the State review.

Response: We appreciate the support of the commenters.

Comment: One commenter found it disappointing that the focus of monitoring of State programs, as set out in the preamble, appeared to be punitive in nature. In the view of this commenter, it appeared that the Department was anticipating the failure of the States to comply and that it therefore must be ready to take corrective and enforcement actions. The commenter suggested that, at the very least, “identifying the need for corrective action, enforcement and improvement within the State title XXI programs” should be the last of the four listed expected outcomes of the monitoring.

Response: We did not intend to be punitive, nor do we anticipate the failure of the States to comply with statutory or regulatory requirements or the specifications of the approved State plan. During the monitoring visits that have taken place thus far, the Department has focused on identifying best practices and needs for technical assistance rather than on compliance. In keeping with the commenters' views, we have rearranged the list of expected outcomes of monitoring as follows: (1) Recognizing and sharing best practices that may lead to increased enrollment; (2) identifying States' needs for technical assistance; (3) informing HCFA as we prepare for the Secretary's report to Congress; and (4) identifying the need, if any, for corrective action, enforcement and improvement within State title XXI programs.

Comment: One commenter recognized that ongoing review of State programs is an evolving process, but suggested that HCFA identify either in this regulation or in a separate policy document “the core set of key policy areas” that it intends to monitor and to establish a protocol for doing so. The commenter specifically recommended adopting as key policy areas the methods to address the needs of racial and ethnic minority children and the needs of children with disabilities.

Response: The HCFA Central Office and Regional Offices develop procedural guidelines to use in the ongoing operation of the monitoring visits and review process. In the flexible Federal review process that we have established, we will monitor to ensure consistent implementation of the coreset of key policy areas specifically described in the title XXI statute. These areas include enrollment and retention procedures; outreach; coordination with other programs; quality, appropriateness and access to care; and other areas related to compliance with the statute, regulations and approved State plan. Because the review process may change over time and may vary from region to region, depending upon specific State needs and circumstances, we do not believe it is appropriate to further specify these procedures in regulation. We agree with the commenter's concern regarding the needs of racial and ethnic minority children, as well as children with special needs, and we plan to incorporate these issues into our monitoring as appropriate. Furthermore, in recognition of the importance of assessing how SCHIP is addressing the needs of racial and ethnic minority children, we have added reporting requirements to subpart G, at § 457.740(a)(2)(ii) for data on race, ethnicity and primary language as well as gender. We hope that these data, together with ongoing monitoring, will enable States, HCFA, and other interested parties to assess these important policy areas.

Comment: Many commenters indicated that it is essential for HCFA to add a requirement that State and local community based organizations and “stakeholders” be involved in HCFA's annual reviews of State SCHIP operations. One commenter explained that it is a practical reality that State officials are at times constrained in their ability to identify problems in their programs candidly; therefore, the inclusion of a diverse group of stakeholders would considerably strengthen HCFA's understanding of State operations and would improve accountability of State programs to their constituents. One commenter recommended including language to recognize the critical role that consumers, advocates, providers, and others play in the design, implementation, and monitoring of SCHIP programs. One of these commenters suggested a public hearing as part of the review. Several commenters expressed a desire that, in providing public input, HCFA provide these organizations and stakeholders with draft and final reports generated through the review process.

Response: We recognize the importance of public involvement in the monitoring process. As part of our ongoing monitoring of programs, including site visits, we have met with advocates, providers and other interested parties, and we have incorporated such contacts into our monitoring protocol. In many cases, as part of the SCHIP site visits, the Regional Office staff have met with advocates and providers to gain additional input on the State's programs. We plan to regularize such conduct, but do not plan to hold public hearings in the course of monitoring of State programs. Moreover, HCFA encourages stakeholders to contact their Regional Office at any time to inform them of issues, suggestions and concerns. The statute specifically requires public input in the development and implementation of SCHIP. Section 2107(c) of the Act, which requires public involvement, and the requirement at § 457.120, reflect the recognition of the importance of involvement of interested parties in the initial design and ongoing implementation of SCHIP. While we will value public input in the monitoring process, to avoid confusion that may be caused by inaccuracies in a draft monitoring report, we do not plan to release draft reports. We will provide final reports to interested parties upon request and encourage such parties to inform us of their comments on these reports.

Comment: One commenter encouraged HCFA to consult with key State level agencies, including Title V Maternal and Child Health and Children with Special Health Care Needs (MCH/CSHCN) programs, in conducting the reviews. In the views of this group, agencies that run State title V MCH/CSHCN programs are involved in SCHIP outreach and enrollment and are vital resources for understanding how SCHIP is working and, particularly, how it fits with other child and family services. One State specifically stated that the Child Support Enforcement (CSE) program should be included in the monitoring because CSE needs to be made aware of children in the child support enforcement caseload that are covered by this type of insurance.

Response: We will monitor for compliance with all regulatory requirements, including the requirement that States coordinate with other sources of health benefits coverage. This may include consulting with other State agencies or programs in conducting reviews as appropriate based on the unique circumstances in the State. We also encourage States to include these partners in the review process. We agree that the Child Support Enforcement agency is an important partner in coordination efforts in the SCHIP program, and issued guidance to this effect in a Fact Sheet on SCHIP and CSE released in January 1999. While we will not require their participation in the monitoring process, our Regional Offices have and will continue to work with State SCHIP agencies to help them identify key partners, including CSE agencies. Further discussion of our requirements for coordination with other programs is found in our responses to comments on § 457.80.

Comment: One commenter recommended that State legislators be included in HCFA site visits that occur as part of the review process.

Response: Because the legislative relationship with SCHIP is different in each State, States may have a widely varying degree of State legislator involvement in the ongoing implementation of their SCHIP programs. State legislators have a key role in the development and oversight of SCHIP programs; however, we do not believe it is appropriate for HCFA to require the inclusion of State legislators in every site visit, as that would intrude into the relationship between State executive and legislative branches. We are, however, willing and interested in meeting with State legislators who have an interest in SCHIP and appreciate their involvement and the special role they play in making SCHIP a success in their home State.

6. State Plan (§ 457.50)

We proposed that the State plan is a comprehensive written statement submitted by the State to HCFA for approval. The State plan describes the purpose, nature, and scope of its SCHIP and gives an assurance that the program will be administered in conformity with the specific requirements of title XXI, title XIX (as appropriate), and the regulations in this chapter. The State plan contains all information necessary for HCFA to determine whether the plan can be approved to serve as a basis for Federal financial participation (FFP) in the State program. We stated in the preamble that an approved State plan is comprised of the initial plan submission, responses to requests for additional information, any other written correspondence from the State and subsequent approved State plan amendments.

Comment: Several commenters strongly recommended consolidating the State plan into one up-to-date document rather than allowing the “plan” to be a conglomeration of the “initial plan submission, responses to request for additional information and subsequent approved State plan amendments.” Without such consolidation, the commenter indicated that the job of understanding the details of the program is extremely difficult forpolicy makers, advocates, and researchers.

Response: We agree that, as some States receive approval for multiple State plan amendments, it will become more difficult to understand the details of the State programs. At this point, an approved State plan is comprised of the initial plan submission, responses to requests for additional information, any other written correspondence from the State related to provisions in the State plan or amendment and subsequent approved State plan amendments. However, in the future, we will request that all States submit consolidated State plans. At such time, we will issue guidance on the format and time frames for submission of a consolidated State plan.

Comment: A commenter asked that, in order to ensure that it will be possible to track States SCHIP policy choices over time, HCFA should commit to keep a copy of each States up-to-date, approved State plan in effect at the beginning of each fiscal year for future reference. Thus, the commenter observed, even if a State plan is subsequently amended, HCFA will have a record of the policies in place for any given State at the beginning of each fiscal year. By keeping an annual “snapshot” of States' SCHIP plans, the commenter noted that HCFA will make it possible for Federal, State, and local policy makers, as well as researchers, to evaluate the impact over time of States' SCHIP implementation choices.

Response: We will continue to keep a record of all State plans, including historic provisions with the effective date of each State plan amendment, so that we will have record of, and be able to make available to others, the policies that were in effect at any given time throughout the operation of a State's program.

Comment: One commenter stated that the plan should be “easily accessible.” One commenter suggested that the preamble language state that the approved State plan, including any attachments, will be made available to the public on the web.

Response: We will continue to make an effort, as resources permit, to make the approved State plan and any approved State plan amendments available to the public on the web site or through links to State sites. To facilitate the posting of this material, we encourage States to submit proposed plan amendments and responses to requests for additional information in an electronic format.

7. Amendments (§ 457.60)

Section 2106(b)(1) of the Act permits a State to amend its approved State plan in whole or in part at any time through the submittal of a plan amendment. We proposed in § 457.60(a) that the State plan must be amended whenever necessary to reflect changes in Federal law, regulations, policy interpretations or court decisions; changes in State law, organization, policy or operation of the program; or changes in the source of the State share of funding. In the preamble to the proposed rule, we discussed in detail our view that only changes that are substantial and noticeable would require amendments. Specifically, we stated that changes in program elements that would not ordinarily be required to be included in the State plan at all would not require an amendment. We proposed in § 457.60(b) that when the State plan amendment makes any modification to the approved budget, a State must include an amended budget that describes the State's planned expenditures for a three year period.

Comment: A few commenters suggested that HCFA provide SCHIP programs with “preprints” such as those provided in the Medicaid program to inform the State of changes in Federal law and regulations.

Response: We agree with commenters that providing preprints would assist States in complying with changes in Federal laws, regulations and policies. In Medicaid, a “preprint” is similar to the State plan template we have provided in SCHIP, where the State agrees to administer the Medicaid program in accordance with federal law and policy. The Medicaid State plan preprint sets forth the scope of the Medicaid program, including groups covered, services provided, and reimbursement rates for providers. In SCHIP, we have provided States with a State plan template, which also serves as the template for amendments to the State plan, and lays out in a series of questions and check boxes a guideline for States to follow in explaining the components of their program. We will be revising this template to reflect the provisions of this final regulation.

Comment: Many commenters asked that States be given a reasonable amount of time to implement new Federal requirements. One State specifically recommended that each State's contracting cycle time be used as the appropriate implementation time frame for new requirements. Another commenter urged the Department to take into consideration the many factors outside of Governors' control, such as contract cycles and legislative sessions, in determining when States must achieve final compliance.

Another commenter strongly urged that HCFA add a new subsection to § 457.60 that establishes a procedure by which States can submit State plan amendments that bring their State plans into compliance with the requirements of title XXI as set forth in the final version of the regulation. This commenter suggested that HCFA give States no more than six months after the issuance of the final regulations to submit State plan amendments that bring them into compliance.

Response: Most of the rules set forth in these final regulations are not new; in most cases, these rules reflect the pre-regulatory guidance issued since SCHIP was enacted into law. However, we note the commenters' concern that States need a reasonable amount of time to implement new Federal rules that have been promulgated in response to the comments received. We have considered that compliance with these final rules may require State legislation or changes to contracts. We will require that States come into conformity with new requirements within 90 days of publication of this rule, or if contract changes are necessary, the beginning of the next contract cycle. By contract cycle, we mean the earlier of the date of the end 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). If a new regulatory provision requires a new or amended description of procedures in the State plan, the State must implement the procedures within the above time frame, but the State plan amendment does not necessarily need to be submitted within the 90-day period as provided in § 457.65(a)(2). For example, if this final regulation were published on January 1, 2001, then States would have to comply with all new requirements by March 31, 2001 (unless the implementation of the new regulatory provision requires a contract change.) If a State needs to amend the State plan to include a new or revised description, then the State still must implement the new requirement by March 31, 2001, and must submit the State plan amendment by the end of that State fiscal year, or, if later, the end of the 90-day period.

Comment: A commenter requested that we require State plan amendments to describe the steps the State has taken to ensure that any organizations with which it contracts using title XXI funds are in full compliance. In some cases, the commenter noted, it is possible that a State will be unable to comply withaspects of the final rule until it completes a contract cycle or convenes a legislative session. In such cases, the commenter recommended that a State could be given the opportunity to negotiate an alternative time frame with HCFA for implementation of selected aspects of the final rule.

Response: We do not agree with the suggestion that we require States to describe in their State plans how they have assured compliance of its contractors with title XXI. The State has the responsibility under section 2106(d)(1) of the Act for ensuring that the State, including its contractors, fulfills the obligations of title XXI. If we find through monitoring that services are being provided in a manner that is substantially noncompliant with applicable Federal law, regulations and the approved State plan, then we may take compliance actions in accordance with subpart B of part 457 (promulgated at 65 FR 33616, May 24, 2000).

Comment: One State indicated that modifications to its State plan to reflect changes in Federal law would be “counterproductive” because substantial changes to the ongoing program to come into compliance with new regulations could lead to coverage delays for some children. This same State also recommended that any new regulations or policy interpretations that would restrict or substantially alter a State's SCHIP should apply only prospectively, that States should not have to amend their approved State plans retroactively, and that “agreements that were previously approved should not be changed unless HCFA could prove that a beneficiary would be substantially harmed in the absence of such a change.” If HCFA requires States to make changes retroactively, this State recommended that HCFA should provide additional funds to help States finance the costs of the changes and that these funds should not be deducted from the States' title XXI allotments.

Response: We are requiring that States comply with this final rule on a prospective basis. States will not need to comply with new requirements retroactively. As previously set forth, this regulation will take effect 90 days after the publication date, although, if contract changes are necessary to comply with a particular requirement States will not be considered out of compliance if they do not comply with that requirement until the beginning of the next contract cycle, as described above. Pre-existing Federal requirements that have been incorporated into this regulation are already effective. States that are not complying with these pre-existing requirements could be subject to an enforcement action.

Comment: Several commenters asserted that proposed § 457.60(a)(2) requiring a State plan amendment to reflect “[c]hanges in State law, organization, policy or operation of the program” was too expansive and exceedingly burdensome. One commenter suggested that operational changes that do not affect eligibility or benefits not be treated as changes that require State plan amendments. Another commenter recommended that we require a State plan amendment only for a change that eliminates, restricts, or otherwise modifies eligibility, even if the change impacts only a small number of enrollees.

Some commenters recommended that the State plan amendments should be required for any changes in the following areas: (1) Eligibility, including crowd-out policies; (2) benefits, including type, scope, and duration; (3) cost sharing; (4) data reporting; (5) screen and enroll procedures under §§ 457.350 and 457.360; (6) procedures for rationing access to enrollment; (7) disenrollment for failure to pay cost sharing or for cause; and (8) substantial changes in outreach and enrollment policies.

Response: We agree that the proposed requirement set forth at proposed § 457.60(a)(2), (now § 457.60(b)), was administratively burdensome. Our intention was better reflected in the preamble to the proposed rule, although this, too (particularly our use of the phrase “substantial and noticeable”) merited further clarification. We had specifically requested comments on this issue in the preamble to the proposed regulation.

In light of these comments, we have revised § 457.60 to be more precise about when amendments must be submitted. We have revised proposed § 457.60(a)(1), now § 457.60(a), to generally require a State to amend its State plan whenever necessary to reflect changes in Federal law, regulations, policy interpretation, or court decisions, that affect provisions in the approved State plan. This element of the final rule assures that a State keeps its State plan up-to-date; this is particularly important to assure ongoing public involvement in program implementation. We have revised proposed § 457.60(a)(2), now § 457.60(b), to require a State to amend its State plan whenever necessary to reflect changes in State law, organization, policy or operation of the program that affect key program elements. Thus, amendments are required when there are changes in eligibility, including but not limited to enrollment caps and disenrollment policies; procedures to prevent substitution of private coverage, including exemptions or exceptions to required periods of uninsurance; the type of health benefits coverage offered; addition or deletion of benefits offered under the plan; basic delivery system approach; cost sharing; screen and enroll procedures, and other Medicaid coordination procedures; and other comparable required program elements. We may issue guidance to further interpret “other comparable required program elements” as the program evolves and experience demonstrates that there are other changes that should require an amendment.

We do not agree that required State plan amendments should be limited only to those that eliminate or restrict eligibility or benefits. We also have not required a State plan amendment for changes in data reporting, as suggested by the commenters, because for approval of a State plan, a State is only required to provide an assurance that it will provide data as required by HCFA and that data may change over time. Finally, we have not required a State plan amendment for substantial changes in outreach strategies, as suggested by the commenters, because we believe that a State needs to have flexibility to adapt its outreach strategies as frequently as it finds necessary to best reach potentially eligible children without having to submit a State plan amendment in order to do so.

Comment: Several commenters praised HCFA for noting in the preamble its intent only to require an amendment for substantial and noticeable program changes and hoped this flexibility would be reflected in the final rule.

Several commenters noted that “substantial and noticeable” changes can be interpreted in a variety of ways, depending upon whom the change affects. One commenter noted that a change that affects the eligibility of 300 families across the State, 25 families in one community, or a particular group such as immigrant families, will be substantial and noticeable to the affected families, but likely to be inconsequential and unnoticed by the rest of the State or the community. Another commenter recommend that the “substantial change” language be added to the regulation text, as opposed to only being mentioned in the preamble, given that courts and other agencies cannot rely on language contained only in the preamble.

Response: We appreciate the commenters' support for our generalintent to require amendments only for significant and noticeable program changes. As discussed above, we agree that the discussion of this issue in the preamble to the proposed rule was not clear and did not provide sufficient guidance to States. Further, we agree that the policy should be included in the regulation text to ensure proper implementation. Therefore, we have revised § 457.60(a) (now § 457.60(b)) to clarify when a State plan amendment will be required, by identifying the categories of changes that, by their nature, have a significant effect. State plan amendments will be required for all program changes that fall into these categories.

Comment: One commenter believes that HCFA should not require either State plan amendments or public input for small program changes.

Response: As noted in previous responses, we have revised proposed § 457.60(a)(2), now § 457.60(b), to specify those changes that require a State plan amendment; the rules assure the plan will be revised to reflect significant program changes. We require States to provide assurances that it permits ongoing public involvement once the program has been implemented, and we require certification of public notice for State plan amendments relating to eligibility and benefit restrictions pursuant to § 2106(a)(3)(B) of the Act (see § 457.65(b)(1).) We are not, however, requiring that a State routinely certify that it has obtained public input prior to submitting a plan amendment to HCFA. We encourage States to obtain meaningful public input prior to submission of a State plan amendment and believe that public involvement prior to the implementation of a program change would constitute an important part of the ongoing public involvement. Further discussion of requirements for public involvement are found in response to comments on § 457.120.

Comment: One commenter suggested that proposed § 457.60(a)(3) (now § 457.60(c)) and § 457.65(d)(2) (the section containing more detail on State plan amendments regarding changes in certain sources of funding) be combined for organizational purposes. Another commenter recommended that HCFA delete the requirement that a State submit a State plan amendment when the source of the State share of the SCHIP funding changes because the source of State funding is “irrelevant.” Another commenter recommended that HCFA should consider another mechanism for ensuring that States do not use prohibited revenue sources such as impermissible provider taxes or donations. One commenter noted that this requirement will deter States from modifying their plans in order to better provide health services to children in need.

One commenter asserted that a certification by the State should be sufficient to assure that the State is not using impermissible taxes. Another commenter suggested that federal concerns would be better addressed by an effort to educate States as to the statutory limitations on such taxes.

Response: We agree that combining proposed § 457.60(a)(3) and § 457.65(d)(2) makes organizational sense because both relate to changes in the source of a State share of funding. Therefore, we have deleted proposed § 457.65(d)(2) and revised proposed § 457.60(a)(3), now § 457.60(c), to include the substance of § 457.65(d)(2). Section § 457.60(c) now requires a State to amend its State plan whenever necessary to reflect changes in the source of the State share of funding, except for changes in the type of non-health care related revenues used to generate general revenue.

However, we disagree with the commenter's recommendation to delete proposed § 457.60(a)(3), now § 457.60(c). The source of State funding is relevant because Section 2107(d) of the Act requires a State plan to include a description of the budget for the plan and include details on the sources of the non-Federal share of plan expenditures, as necessary. In addition, section 2107(e)(1)(C) of the Act provides that section 1903(w) of the Act (relating to limitations on provider taxes and donations) applies to States in the same manner under title XXI as it applies under title XIX. Because section 1903(w) of the Act prohibits States from collecting impermissible provider taxes and donations, and because the title XXI statute requires States to identify, in detail, sources of the States' share of expenditures, it is appropriate to evaluate the permissibility of the non-Federal funding sources involving health care-related taxes and/or donations prior to approval of a State plan and wheneverthe State changes its source of State funds. The method of evaluating the permissibility of State funding sources involving health care-related taxes and/or donations, as set forth at proposed § 457.60(a)(3), now § 457.60(c), is the most efficient mechanism to ensure protection to beneficiaries, Federal taxpayers, and States. However, it should be noted that if a State makes a programmatic change as a result of a change in the amount of the source of the State share, then it is required to submit a State plan amendment in accordance with § 457.60(b).

We believe it is our obligation to ensure the implementation of the congressional intent that States not use impermissible sources of funding for child health programs, as impermissible State funding would place a State's entire program at risk. Furthermore, it appears that Congress sought to avoid the process used in Medicaid of assessing penalties that may accumulate over a long period of time and the disruption in program operation that such penalties can create. By requiring a State to submit a State plan amendment for review, we have an opportunity to prevent the States' use of impermissible funding and any consequential disruption of the program. In the long run, the process better protects States' and the federal government's interest in assuring continuity and ongoing coverage of children.

Comment: A few commenters expressed their concern that the requirement at proposed § 457.60(b) for amended three-year budgets when States modify approved budgets creates a significant burden for both the States and HCFA. A State expressed the opinion that this requirement is particularly burdensome if applied to insignificant modifications to the approved budget.

Two commenters suggested that a three-year budget is difficult because “State budget processes and legislatures do not always coincide with program decisions.” Another commenter similarly noted that a three-year budget is longer than a State agency can reasonably determine at the time program decisions are made because the State portion of the budget is determined annually by the State legislature. An additional commenter stated that the requirement at proposed § 457.60(b) works against the budgetary processes currently in place at the State level, and that budgets are developed for two years into the future at most.

Several commenters argued that three year budget estimates will not be accurate, citing reasons such as the uncertainty caused by tremendous enrollment growth, changing populations, variations in State revenues, and unstable medical expenditures. Two States commented that three year budget estimates would not provide the level of information necessary to assure financial ability to support the program change, and would be of limited use because they would not reflect either actual expenditures or actual enrollment. These States thusasserted that the stated rationale in the preamble, that such a projection would be useful to show if States plan to spend their money in the succeeding two years, will not apply.

One State asserted that there is no reason to look to Medicaid waiver processes for a model for SCHIP budget requirements, since the waiver process requires a demonstration of budget neutrality that is not necessary in SCHIP. This State argued that the model should be the title XIX State plan amendment process.

Some States suggested alternatives for the proposed requirement for three-year budgets with State plan amendments, such as an assurance of available funding; a three year budget with the annual report but not each State plan amendment; or a one-year budget rather than a three-year budget. Several commenters suggested that an amended three year budget should be required only when a State plan amendment would make a significant modification to the previously approved budget, such as a major change in the benefit package, eligibility rules, or cost-sharing.

Response: We agree with the commenters' concerns that the requirement for a three-year budget with a State plan amendment at proposed 457.60(b) creates an unnecessary burden for the States. Section 2107(d) requires that the State's description of the budget for its State plan be updated periodically as necessary. Because we otherwise require that the budget be updated periodically through the annual reports and through quarterly financial reporting, we have revised the requirement at proposed § 457.60(b), now § 457.60(d), to require that only a one-year budget be submitted with a plan amendment that has a significant impact on the approved budget. An amendment would have impact on the approved budget if it changes program elements related to eligibility, as required by § 457.60(b)(1) or cost sharing, as required by § 457.60(b)(6). We have also revised § 457.750 to reflect this change.

Section 457.140, will continue to require that the State submit a three-year budget with their annual report that describes the State's planned expenditures. Because States have up to three years to spend each annual allotment, a three-year budget is useful to show if States project that they will use their unused allotments in the succeeding two fiscal years. We realize that a State must base the required information on projections and that the budget projections submitted to HCFA are not approved by a State's legislature. We also recognize that projections of expenditures for a three-year period may vary from actual expenditures for a variety of reasons. Because SCHIP is a new program, States did not have experience at the beginning of the implementation of their programs to accurately predict enrollment of children or costs associated with providing services. However, we expect that as States gain experience in operation of their programs and as the State program rules stabilize over time, the three-year projections will become more accurate. A three-year budget helps the State plan program expenditures and helps HCFA to analyze spending and develop a responsive reallocation formula within the parameters of the statute.

The preamble for § 457.140 included a discussion of the budget projections required in other programs. We would like to clarify that this discussion was not intended to serve as a rationale for the requirement for a three-year projection of expenditures in the SCHIP program. This discussion was intended to demonstrate that we took the budgetary requirements of other programs into consideration as we determined our budget requirements for SCHIP.

8. Duration of State Plans and Plan Amendments (§ 457.65)

In § 457.65, we proposed that the State may choose any effective date for its State plan or plan amendment that is not earlier than October 1, 1997.

We noted in the preamble that a State may implement a State plan prior to approval of the plan but that any State that implements an unapproved State plan risks the possibility that the plan will not be approved as implemented. If a State implements a State plan prior to approval and it is approved, we also indicated in the preamble our interpretation that the State can receive Federal matching funds on a retroactive basis for expenses incurred (other than expenses incurred earlier than October 1, 1997) for the programs if the State operated in compliance with the approved State plan and all applicable statutory and regulatory requirements. In the event that the State plan is not approved, the Federal government would not match the State's prior expenditures for implementation of the State plan.

In the preamble to the proposed rule, we noted the risks involved in implementing a change in the State program without receiving prior approval of that change through a State plan amendment. If a State makes a change and the State plan amendment reflecting the change is later disapproved, the State may either risk its Federal matching or face a compliance action. The State cannot receive Federal matching for expenditures on a program change that is disapproved through the State plan amendment process if these expenditures can be segregated from expenditures on the approved State plan. The State would be subject to the compliance remedies described in section 2106(d) of the Act, as implemented in the final financial regulation (65 FR 33616), May 24, 2000, if the expenditures on such a program cannot be segregated from expenditures on the approved State plan. A compliance action is appropriate because the continued operation of the unapproved program change constitutes a failure to conduct the State program in accordance with the approved State plan.

Section 2106(b)(3)(C) of the Act provides that any State plan amendment that does not eliminate or restrict eligibility or benefits can remain in effect only until the end of the State fiscal year in which it becomes effective (or, if later, the end of the 90-day period in which it becomes effective) unless the State plan amendment is submitted to HCFA before the end of the period. We proposed to implement this provision at § 457.65(a)(2). Thus, if a State program change is implemented and the corresponding amendments are not submitted within the required time frame, the State risks being found out of compliance with its State plan and therefore, risks loss of Federal financial participation in expenditures beyond the scope of the approved State plan or other financial sanctions, as discussed in the final financial regulation (65 FR 33616), May 24, 2000.

Section 2106(d)(2) of the Act requires that the Secretary provide a State with a reasonable opportunity for correction before taking financial sanctions against the State on the basis of an enforcement action. Thus, we proposed to clarify certain provisions set forth in HCFA 2114-F (65 FR 33616, May 24, 2000). Specifically, paragraph (d)(2) of § 457.204, “Withholding of payment for failure to comply with Federal requirements,” discussed the opportunity for correction prior to a financial sanction for failure to comply with a Federal requirement. As proposed, § 457.204(d)(2) provided that if enforcement actions are proposed, the State must submit evidence of corrective action related to the findings of noncompliance to the Administrator within 30 days from the date of the preliminary notification. In the SCHIPprogrammatic regulation, we proposed to revise § 457.204(d)(2) to address in more detail the possible scope of corrective action that could be required. We proposed that corrective action is action to ensure that the plan is and will be administered consistent with applicable law and regulations, to ameliorate past deficiencies in plan administration, and to ensure equitable treatment of beneficiaries.

In accordance with section 2106(b)(3)(B)(ii) of the Act, at § 457.65(b), we proposed that an amendment that eliminates or restricts eligibility or benefits under the plan may not be effective for longer than a 60-day period unless the amendment is submitted to HCFA before the end of that 60-day period. We further proposed, in accordance with section 2106(b)(3)(B)(i), that amendments that eliminate or restrict eligibility or benefits under the plan may not take effect unless the State certifies that it has provided prior public notice of the proposed change in a form and manner provided under applicable State law. The notice must be published prior to the requested effective date of change.

At § 457.65(c) we proposed that a State plan or plan amendment that implements cost-sharing charges, increases the existing cost-sharing charges or increases the cumulative cost-sharing maximum permitted under proposed § 457.560 is considered an amendment that restrict benefits and must meet the requirements of § 457.65(b).

At § 457.65(d), we proposed that a State plan amendment that requests approval of changes in the source of the State share of funding must be submitted prior to such change taking effect. With regard to source of funding, we stated that if a State has indicated that general revenues are the source of funding, then we would require a plan amendment for changes in the State's tax structure that reflect or include a change to general revenues based on health care related revenues used to finance the State's share of title XXI expenditures. We would not require a plan amendment to reflect changes in the type of non-health care related revenues used to generate general revenue.

In accordance with section 2106(e) of the Act, at § 457.65(e), we proposed that an approved State plan continues in effect unless the State modifies its plan by obtaining approval of an amendment to the State plan or until the Secretary finds substantial non-compliance of the plan with the requirements of the statute and regulations. An example of substantial non-compliance would be the imposition of cost-sharing charges that exceed Federal limits.

Comment: A few commenters expressed concern about the time frames for submission of State plan amendments. A commenter suggested that HCFA follow guidelines similar to Medicaid guidelines that allow a State to submit a plan amendment that is statutorily allowable in the quarter after the State's implementation of the change. Another commenter proposed that the time frames for submitting an amendment be the same regardless of whether the State plan amendment limits or restricts eligibility or benefits. In the view of this commenter, States are likely to make errors if the time frames are different.

Response: Section 2106(b)(3) of the Act provides specific time frames for submission of State plan amendments. A State plan amendment that does not eliminate or restrict eligibility or benefits can remain in effect until the end of the State fiscal year in which it becomes effective (or, if later, the end of the 90-day period in which it becomes effective) unless the State plan amendment is submitted to HCFA before the end of that State fiscal year or the 90-day period. This time frame is more liberal than the time frame under the Medicaid guidelines, which only permit a title XIX amendment to be effective from the first day of the quarter in which the amendment is submitted. Furthermore, under the statute, an amendment that eliminates or restricts eligibility or benefits under the plan may not be effective for longer than a 60-day period unless the amendment is submitted to HCFA before the end of that 60-day period. While we note the potential for confusion caused by two different time frames, section 2106(b)(3) of the Act explicitly provides for different time frames for different types of amendments and does not provide authority for a different process. States are encouraged to discuss planned amendments with HCFA to assure they are submitted in a timely manner.

Comment: One commenter appreciated HCFA's support for State flexibility in how to provide public notice of State plan amendments. Other commenters applauded HCFA's decision to treat State plan amendments that increase cost sharing as amendments that restrict “eligibility or benefits.”

Response: We note the commenters' support.

Comment: One commenter requested that HCFA clarify whether it intends to require public notice when a family will experience an increase in its premium share because the subsidy rate is being applied to a premium that resulted from an insurance carrier rate increase. In this commenter's view, public notice is unnecessary in this situation because the State is not initiating the private sector rate increases. The State could continue to assure that the family's total cost sharing remains within Federal limits.

Response: A change in cost sharing that increases the amount of premium share owed by the enrollee, must be reflected in a State plan amendment that meets the requirements set forth in § 457.65(c). However, an increase in premium share that does not affect the enrollee's cost-sharing charges or that does not bring the cost sharing charges above the level reflected in the State plan would not be subject to the public notice requirements of § 457.65(b). We recognize that § 457.65(b) could be difficult to administer in States that provide premium assistance for coverage provided through group health plans, depending how a State chooses to design its premium assistance program. However, such an increase may impact the enrollee's access to services and participation in SCHIP and, consistent with the statutory requirements for amendments eliminating or restricting benefits at 2106(b)(3)(B), the public must be given notice prior to the increase. The statute does not provide an exception for coverage provided through group health plans.

However, a State has flexibility to design a system that will meet the prior public notice requirement. For example, a State may choose to require that the family be charged a fixed dollar amount, rather than a percentage of total premium, to hold constant the amount of premium share that the family is charged. Alternatively, a State may generally keep its charges for premium assistance programs below the level of cost sharing approved under the State plan to allow room for some cost-sharing increases that would not bring the charges above the level reflected in the plan. A State also may choose to establish a mechanism to be notified of increases prior to those increases taking effect so that it may provide prior public notice as required by § 457.65(b).

Comment: A commenter asked that HCFA clarify that “cost sharing” in this context is defined in the same way as it is in § 457.560 for purposes of imposing cumulative maximums.

Response: So that the term “cost sharing” has the same meaning throughout the final rule, we have added a provision in § 457.10 to define it to include premium charges, enrollment fees, deductibles, coinsurance, copayments, or othersimilar fees that the enrollee has the responsibility for paying. However, we note that for purposes of the actuarial analysis required at § 457.431(b)(7), cost sharing includes only copayments, coinsurance and deductibles as described in the Notice of Proposed Rulemaking.

Comment: One commenter asked HCFA to clarify that amendments that lengthen or institute eligibility waiting periods of uninsurance or narrow exceptions to such waiting periods constitute amendments that affect “eligibility or benefits.”

Response: To clarify that instituting or changing eligibility waiting periods without health insurance, narrowing exceptions to such periods, or changing open enrollment periods in a way that would further restrict enrollment in the program are considered to be State plan amendments that restrict eligibility, we have added a new paragraph (d) to § 457.65. This new provision specifies that a State plan amendment that implements eligibility waiting periods without health insurance; increases the length of existing eligibility waiting periods without health insurance; or institutes or expands the use of waiting lists, enrollment caps or closed enrollment periods is considered an amendment that restricts eligibility and must meet the public notice requirements set forth in this section. Eligibility waiting periods without health insurance and limited open enrollment periods are restrictions in eligibility because these enrollment procedures directly limit an enrollee's access to the program. We further clarified in § 457.305 that in the State plan, the State must include a description of the State's policies governing enrollment and disenrollment, including enrollment caps, process(es) for instituting waiting lists, deciding which children will be given priority for enrollment, and informing individuals of their status on a waiting list, if applicable to that State.

Comment: Many commenters expressed concern about whether the provision at § 457.65(b)(1) requiring States only to certify that they have provided public notice of such plan amendments “in a form and manner provided under applicable State law” provides meaningful public input into proposed State plan amendments. These commenters questioned whether “notice” provides the opportunity to comment on and discuss a proposal, and point out that the form of notice could prove largely meaningless, depending on a State's particular laws. Several commenters recommend that the final rule require States to certify that they have provided prior public notice and a meaningful opportunity for the public to submit comments on any proposed State plan amendments that affect eligibility or benefits. States have found such input to be helpful to identify ways in which the program can be improved and maintain strong support for the program. An additional commenter believed that State plan amendments to make changes in benefits require public notice and comment.

Response: We encourage States to obtain meaningful public input prior to submission of a State plan amendment that eliminates or restricts eligibility or benefits. Furthermore, we require, in § 457.120, that States involve the public once the program has been implemented. However, section 2106(b)(3)(B) of the Act specifically permits a State to certify that it has provided public notice of the change in a form and manner provided under applicable State law, and we believe the requirements under § 457.65 are consistent with the flexibility provided by this statutory provision.

Comment: One commenter requested that we clarify § 457.65(b)(1) to confirm that States must certify that they have complied with applicable State administrative procedure law or similar requirements mandating public notice and comment with respect to the promulgation of rules or regulations of general applicability. This commenter also requested modification of the provision to clarify that the State must certify that it has complied with all applicable State legal requirements for notice and a meaningful opportunity for public comment. Although State processes vary, this commenter indicated that there is generally a requirement that notice be issued for a specified period of time, followed by a period for public comment. This same commenter believes that § 457.65(b)(2), which requires that public notice be published before the effective date of the change, should be eliminated because it could be interpreted to allow State plan amendments that restrict or eliminate eligibility or benefits to become effective as long as the public notice was published before the requested date of the change, regardless of whether or not the State had provided meaningful opportunity for public comment or whether the applicable time frames had been met.

Response: As noted in the previous response, § 457.65(b)(1) implements section 2106(b)(3)(B) of the Act, which specifically permits a State to certify that it has provided prior public notice of the change in a form and manner provided under applicable State law. While we encourage States to consider public input, title XXI addresses only public notice as a condition for the effective date of certain State plan amendments. Our regulation is not intended to restrict notice and comment opportunities available under State law. We note that States must also comply with the requirements of § 457.120 regarding public involvement.

Comment: One commenter suggested that proposed and submitted State plan amendments be posted on the HCFA and State web sites. The commenter noted appreciation for the effort that HCFA has made to date to post information about the filing of State plan amendments on its web site and encourages the agency to modify the preamble to clarify that State plan amendments (along with State plans) will continue to be made available to the public through the HCFA web site. According to this commenter, the preamble should indicate that HCFA will post the actual plan amendments that are pending whenever possible and that, should this not be possible, the agency will list the name and phone number of a State official who can provide a copy of the pending State plan amendment.

Response: We will continue to make an effort, as resources permit, to make the approved State plan and any approved State plan amendments available to the public on the web site. However, we do not post pending State plan amendments on the web site because amendments are often altered during the approval process, and this may cause confusion to the public, although we will consider identifying on the HCFA web site whether a State has a pending plan amendment under review. The position title of the State official responsible for program administration may be found in the approved State plan. Also posted on the HCFA web site is a list of HCFA contacts for each State's SCHIP program.

Comment: Over a dozen commenters opposed the proposed provision at § 457.65(d) to require prior approval of a plan amendment regarding a States' share of program funds and requested that this requirement be withdrawn. According to these commenters, section 2106 of the Act contemplates a process under which States can specify the effective date of their plans or amendments and, if a plan is approved, a State can receive matching funds on a retroactive basis. In these commenters' view, the statute sets forth straightforward limits on a State's flexibility to specify effective dates, but those limits do not contemplate priorapproval of an amendment. The commenters asserted that the statutory scheme provides adequate remedies for the Secretary if the plan or plan amendment is subsequently disapproved.

Response: We believe the commenters' concerns may be based in a misunderstanding of the process. The requirement at proposed § 457.65(d) does not prevent States from implementing a new source of funding prior to receiving State plan or plan amendment approval. It requires that an amendment be submitted before the change can be implemented, but the amendment does not need to be approved in order for a State to receive matching funds for expenditures relating to the change. A State can submit its amendment on January 1, begin using the new source of funding on February 1, and receive matching funds retroactive to February 1 if the amendment is approved on or after that date.

The requirement at § 457.65(e) ensures that the time period during which a State may operate a program using impermissible funds is limited to the time during which the amendment is under review. HCFA can only approve a State plan amendment to the extent that the source of funding is considered permissible. Thus, while a State may implement a new source of funds prior to receiving State plan approval, the Federal matching funds are at risk until a determination of permissibility has been made. To the extent that source is determined to be impermissible, the State plan amendment would be disapproved and the State would realize the penalty against its SCHIP expenditures in accordance with the statutory penalty provisions. We expect that the required process will protect States from proceeding too far using impermissible State funds, and from thereby placing these programs and enrollee coverage at risk. Furthermore, a State is not required to submit a State plan amendment for changes in the source of general revenues used to fund SCHIP, as long as those changes are not affected by health care-related taxes or donations. For further rationale on our policy requiring amendments on changes in the source of State funding, please see earlier comments on § 457.60.

Comment: Several commenters asserted that the proposed § 457.65(d) intruded on State budgeting and financial prerogatives, was contrary to practices in other federal-state matching programs, and could not have been intended by Congress. One commenter did not understand why the Federal government wants prior approval of increases in State commitments under title XXI when Congress has provided States with firm allotments for at least five years. Several commenters noted that it may not be possible for the State to submit a State plan amendment to HCFA before the effective date of any change in the source of the State share of funding becomes effective because of the legislative budgeting cycle, which sometimes includes supplemental funding for incurred expenditures or legislation with a retroactive effective date to take advantage of previously unavailable funds.

Response: It is important to note that § 457.65(d) does not require prior approval of new State funding sources. We recognize that § 457.65(d) may reduce State flexibility, we must also consider the statutory penalties for the use of impermissible provider taxes and donations as specified in section 2107(e) and the public interest in assuring that States do not find themselves in a situation where they have been operating with impermissible funding sources for an extended period of time. Congress specifically imposed penalties for the use of impermissible funds and the process established by these rules protect States and SCHIP programs from the risk of a significant penalty that could make it difficult for the State to continue to operate its program for children. In light of the effective statutory prohibition on the use of these funding mechanisms, we do not believe we are unduly intruding on the States budget process through this requirement, as we are not questioning State legislative appropriations that are not derived from health care-related taxes or donations. A State is not required to submit a State plan amendment for changes in the sources of general revenue used to fund SCHIP, when those changes are not affected by health care-related taxes and donations. By reviewing the State source of funding, we have the opportunity to prevent the kind of disruption to ongoing program operations that could occur if a State was found to have used an impermissible source of funding for an extended period of time.

Comment: One State expressed its view that the proposed requirement of prior approval for SCHIP funding changes is not feasible given the State's commitment to developing a public/private partnership with private donors. The State indicated that it waited almost a year for approval from HCFA to be able to accept a contribution from a private foundation. This State asserted that this requirement would hinder the State's ability to accept contributions from private sources.

Response: States are not required to obtain approval of the State plan amendment prior to a change taking effect. Thus, we do not believe that the process will hinder States' ability to accept contributions from private sources. States are required by § 457.65(e) to submit a State plan amendment prior to a change in State source of funding taking effect. While any delay in approving the amendment would not affect a State's ability to rely on such funds, at its own risk pending review, we agree that HCFA should act in an expeditious manner to review these amendments. The statutory requirements governing contributions received by States are very restrictive and we have the responsibility to ensure that contributions received by States from private sources comply with these statutory requirements. Federal regulations require that we evaluate contributions received by States on a case-by-case basis. States must submit necessary documentation to us in accordance with the Federal regulations so that we may evaluate the permissibility of a contribution. That documentation is related to the nature of the contributor's business and financial characteristics, including the source of its annual revenues. We will make our best effort to determine the permissibility of a contribution promptly once a State has provided the information that we need to make a determination.

Comment: One commenter requested clarification of the exemption at § 457.65(d)(2) to the general requirement for the submission of State plan amendments relating to changes in the source of State funding for “non-health care related revenues.” The commenter stated that clarification is necessary to ensure that, for example, income tax receipts from medical professionals are not considered “health care related revenues.”

Response: Taxes of general applicability are not considered “health care-related” for purposes of section 1903(w) of the Social Security Act, and the term has the same meaning under § 457.60(a)(3). (As noted earlier, § 457.65(d)(2) has been combined with 457.60(a)(3) for better organization of the regulation.) However, section 1903(w)(3)(A) of the Act and the Federal regulations implementing it at 42 CFR 433.55 specify that a tax will be considered to be health care-related if at least 85 percent of the burden of the tax falls on health care providers. These provisions further state that a tax is considered to be health care-related ifthe tax is not limited to health care items or services, but the tax treatment of individuals or entities providing or paying for those health care items or services is different than the treatment provided to other individuals or entities.

Comment: One commenter suggested adding a new provision to proposed § 457.65(e), now § 457.65(f), to clarify that a State could discontinue its program by withdrawing its State plan.

Response: As set forth in § 457.170, a State may request withdrawal of an approved State plan by submitting a State plan amendment to HCFA as required by § 457.60. We note in § 457.170 that because withdrawal of a State plan is a restriction of eligibility, a State plan amendment to request withdrawal of an approved State plan must be submitted in accordance with requirements set forth in § 457.65(b), including those related to the provision of prior public notice. We have not added a new provision to proposed § 457.65 because we do not find it necessary to repeat this State option elsewhere in the regulation text.

9. Program Options (§ 457.70)

Under section 2101(a) of the Act, a State may obtain health benefits coverage for uninsured, low-income children in one of three ways: (1) a State may provide coverage by expanding its Medicaid program; (2) a State may develop a plan providing coverage that meets the requirements of section 2103 of the Act; or (3) a State may provide coverage through a combination of a Medicaid expansion program and a separate child health program.We set forth the program options at proposed § 457.70(a).

At § 457.70(b), we proposed that a State plan must include a description of the State's chosen program option.

At § 457.70(c)(1), we proposed that the following subparts apply to States that elect Medicaid expansions:

• Subpart A.

• Subpart B (if the State claims administrative costs under title XXI).

• Subpart C (with respect to the definition of a targeted low-income child only).

• Subpart F (with respect to determination of the allotment for purposes of the enhanced matching rate, determination of the enhanced matching rate, and payment of any claims for administrative costs under title XXI of the Act only).

• Subpart G.

• Subpart H (if the State elects the eligibility group for optional targeted low-income children and elects to operate a premium assistance program).

• Subpart J (if the State claims administrative costs under title XXI and seeks a waiver of limitations on such claims based on a community based health delivery system).

We proposed that subparts D, E, and I of part 457 do not apply to Medicaid expansion programs because Medicaid rules govern benefits, cost sharing, program integrity and other provisions included in those subparts. We note that the provisions of subparts B and F were set forth in the May 24, 2000 final rule (HCFA 2114-F, 65 FR 33616).

In addition, at proposed § 457.70(c)(2), we specified that States choosing a Medicaid expansion program must submit an approvable amendment to the State's Medicaid State plan, as appropriate.

At § 457.70(d), we proposed that a State that chooses to implement a separate child health program must comply with all the requirements in part 457.

At 457.70(e), we proposed that a State that elects to obtain health benefits coverage through both a separate child health program and a Medicaid expansion program must meet the requirements of (c) and (d) of this section.

Comment: While the statute specifies that States have the option of implementing their SCHIP programs as Medicaid expansions, State-only programs, or a combination of the two, a commenter contended that the regulations favor States that have elected to use title XXI to expand their Medicaid programs by imposing greater administrative burdens on separate child health programs.

Response: We do not agree that the regulations favor States that choose the Medicaid expansion option. Certain provisions in part 457 do not apply to Medicaid expansion programs because Medicaid rules govern those aspects of program operations. Furthermore, we do not believe that we have imposed greater administrative burdens on States that choose to implement separate child health programs. The regulations set forth in part 457 are consistent with the State options provided by title XXI and are important to ensure the efficient and effective administration of SCHIP. We have worked to ensure flexibility for States that wish to create separate child health programs within the parameters of the statute.

Comment: One commenter noted that § 457.70(c)(1)(vi) should be deleted because Subpart H only applies to separate child health programs. Another commenter said that the language of Section 457.70 should be clarified so that readers do not assume incorrectly that States that choose to develop separate programs must adhere to all Medicaid rules.

Response: We agree with the commenter that Subpart H does not apply to Medicaid expansion programs and have thus deleted § 457.70(c)(1)(vi) of the proposed regulation and renumbered the subsequent provision accordingly. Subparts C, D, E, H, I, and K of part 457 do not apply to Medicaid expansion programs because Medicaid rules govern the areas addressed by those subparts. A State that chooses to implement a separate child health program must comply with all the requirements in part 457 and is not required to comply with the requirements in title XIX, other than those specifically noted in § 457.135. We believe that § 457.70 clearly sets forth the applicable requirements for the respective program types. It should also be noted that because we no longer reference Subpart C in § 457.229, we have also deleted proposed § 457.70(c)(i)(iii).

10. Current State Child Health Insurance Coverage and Coordination (§ 457.80)

In accordance with sections 2102(a)(1) and (2) and 2102(c)(2) of the Act, we proposed to require that the State plan describe the State's current approach to child health coverage and its plans for coordination of the program with other public and private health insurance programs in the State. In proposed paragraphs (a) through (c), we specified that the State must provide a description of the following:

• The extent to which, and manner in which, children in the State, including targeted low-income children and other classes of children, by income level and other relevant factors, currently have creditable health coverage (as defined by § 457.10) and, if sufficient information is available, whether the creditable health coverage they have is under public health insurance programs or health insurance programs that involve public-private partnerships.

• Current State efforts to provide or obtain creditable health coverage for uncovered children, including the steps the State is taking to identify and enroll all uncovered children who are eligible to participate in public health insurance programs and health insurance programs that involve public-private partnerships.

• Procedures the State uses to accomplish coordination of the program under title XXI with other public and private health insurance programs, including procedures designed to increase the number of children withcreditable health coverage, and to ensure that only eligible targeted low-income children are covered under title XXI.

Comment: One commenter noted that HCFA should not require States to gather data on other creditable health coverage available in the State as proposed in § 457.80(a). While useful, this information is not critical to the successful implementation of a SCHIP and its collection may actually divert resources from SCHIP.

Response: Section 2102(a)(1) of the Act requires that the State plan include a description of the extent to which, and manner in which, children in the State, including targeted low-income children and other classes of children, by income level and other relevant factors, currently have creditable health coverage. Section 457.80(a) implements this statutory requirement. States do not necessarily have to generate new data to meet this requirement, but can rely on other data sources that may be available. Knowledge of the availability of creditable health coverage will help a State determine how best to design and to implement its SCHIP program and outreach strategies.

Comment: Several commenters requested that HCFA add to the categories of children for which it requests coverage information in § 457.80(a). Two commenters request that HCFA add “migrant and immigrant status” to the sentence in the preamble highlighting the categories that States might find useful in describing current availability of health insurance. In these commenters' view, migrant and immigrant children are especially susceptible to being without health insurance, and the Immigration and Naturalization Service recently clarified in its “public charge” guidance, issued in a Notice of Proposed Rulemaking (64 FR 28675, May 26, 1999) and an accompanying Memorandum published the same day (64 FR 28689), that receipt of health benefits will not harm one's chances for legal immigration. Another commenter recommended that the required factors include “suburban” in addition to the age group, race and ethnicity, and rural/urban categories already listed in the preamble because suburban areas across the county have a growing number of low-income and uninsured families.

Another commenter suggested that HCFA require that the State plan include a description of the extent of coverage by race, ethnicity, and primary language spoken. According to this commenter, it is now well-established that minority children are more likely than non-minority children to lack health insurance. In this commenter's view, collection of the data also gives HHS the tools needed to monitor and enforce title VI of the Civil Rights Act of 1964.

One commenter recommended that “other relevant factors” be clarified and several other commenters believed the list should include primary language, because children with limited English proficiency are at high risk of being uninsured.

Response: We encourage States to include a description of as many relevant categories of children in the State plan as possible, to the extent that data are available. We agree that more detailed data classifying children is useful to learn more about the health care coverage status of the children in the State, but recognize that States may have limited data sources and that some categories have more relevance than others, depending on the State. Because of the potential limited availability of this information at the outset of a program, we are retaining the flexibility in § 457.80(a) for a State to describe in the State plan the classes of children for which it has data available. We note, however, that we have added a provision in Subpart G, Strategic Planning, that requires States to report data on the gender, race and ethnicity of enrollees in their quarterly enrollment reports. In addition, States will be required to report information on the primary language of SCHIP enrollees in their annual reports.

We are not adopting the commenter's recommendation to require information for specific categories of children in the regulation. This provision requires that a State describe coverage provided to children at the beginning of implementation of its program. We recognize that States may have limited resources available at that time and request that they provide information sufficient to illustrate that the State has analyzed the extent of uninsurance among children in the State using available data sources.

Comment: One commenter interpreted § 457.80(b) to require a State to take steps to get uninsured children enrolled in public and private health insurance programs. In this commenter's view, families should have a choice of where to get coverage and States should therefore be allowed to inform families of coverage options and, upon request, assist in helping families with choices made.

Response: Section 457.80(b) requires that a State plan include a description of the current State efforts to provide or obtain creditable health coverage for uncovered children. This provision does not require that a State take particular steps to identify and enroll children in public and private health insurance programs, but rather to describe its efforts. However, States are required by §§ 457.350 and 457.360 to screen for Medicaid eligibility and to have procedures to ensure that children found through the screening process to be eligible for Medicaid apply for and are enrolled in Medicaid.

Comment: One commenter described its view that HCFA is creating unnecessary obstacles in these regulations to creating public-private partnerships. This commenter believes that one reason States have problems getting providers to participate in their programs is that many providers do not want to respond to the various idiosyncrasies of government programs such as the “unnecessary” paperwork and the “awkward” procedures that no other payor or insurance company requires. The commenter believes that these problems help stigmatize government programs and can cause well-intentioned providers to opt out of participation in SCHIP or other government programs. According to this commenter, providers that remain may develop negative attitudes about the program that transfer into negative attitudes about the participants, who may leave the program. To solve this problem, many States (including this commenter) have tried to address these and other stigma issues by creating separate child health programs that are more similar to private sector models and more familiar to providers and enrollees.

Response: The provisions set forth in this regulation are necessary to implement title XXI and are not intended to create obstacles to public-private partnerships. Title XXI and this final regulation provide States with significant flexibility in designing separate child health programs and we do not believe that federal rules are preventing States from employing procedures that address negative perceptions about public programs that may exist among providers. As noted in § 457.940, States have flexibility to set payment rates for providers and should do so in a manner that will attract a sufficient number and scope of providers that will adequately serve the SCHIP population. We believe this final rule confirms HCFA's commitment to working with States to establish and maintain programs that are not unduly burdensome to administer and accomplish the goal of providing needed health benefits coverage to children and families.

Comment: The preamble to § 457.80(b) explains that HCFA proposes to require States to provide an overview of current efforts made by the State to obtain coverage for children through other programs, such as WIC and the Maternal and Child Health Block Grant Program. Several commenters stated that although these programs offer health care or health-related services, they are not considered to be health insurance coverage programs, and requiring a description of coordination with these other programs in the State exceeds the scope of the SCHIP statute. Another State commented that describing the outreach and coordination efforts of all the other existing health programs would be extremely burdensome and should not be required.

One commenter supported the requirement of coordination between SCHIP and other publicly funded programs that provide coverage to uninsured children but expressed concern with an overly broad and burdensome requirement that puts States in the potential position of acting as unlicensed insurance agents or brokers to link consumers with private creditable coverage. One State expressed that HCFA should more clearly define what is meant by “coordination with other public and private health insurance programs.” In defining this term, HCFA should keep in mind that, especially in large States, staying involved in all parts of the private insurance market is a challenging task.

One commenter recommended that the Child Support Enforcement (CSE) program be included in the coordination provision at § 457.80(c) because CSE needs to be made aware of children in the CSE caseload who are covered by SCHIP. Another commenter noted that SCHIP enrollees may benefit from the services offered by a State child support program, and that families need to understand options related to obtaining or enforcing child support and medical support orders.

Response: We are responding to the comments requesting clarification of the required State plan provisions on coordination with other public and private health coverage programs by revising our proposed regulatory language to better reflect our intent and purposes. As described in the preamble, § 457.80(c) is meant to reflect the coordination requirements of Sections 2101(a), 2102(a)(3), and 2102(c)(2) of the Act. Section 2101(a) requires that in using title XXI funds to expand coverage to uninsured populations, this effort be “coordinated with other sources of health benefits coverage for children.” Section 2012(a)(3) of the Act requires that a State plan describe how the plan is designed to be coordinated with such efforts to increase coverage under creditable health coverage. As provided by section 2102(c)(2) of the Act, the plan must also describe the coordination of the administration of the State program under this title with other public and private health insurance programs.

In accordance with these requirements, we have revised § 457.80(c) to clarify that the State plan must include a description of the procedures the State uses to coordinate SCHIP with public and private health insurance and “other sources of health benefits coverage” for children. “Other sources of health benefits coverage” would include WIC and Maternal and Child Health Programs. Section 2108(b)(1)(D) of the Act supports this clarification. This section requires an assessment of State efforts to coordinate SCHIP with “other public and private programs providing health care and health care financing including “Medicaid and maternal and child health services.”

As noted in the preamble to the proposed rule, additional examples of sources of health benefits coverage could include community and migrant health centers, Federally Qualified Health Centers, Child Support Enforcement Programs, and special State programs for child health care. These can all be important sources of health benefits coverage for children. This list of examples is not intended to be an exhaustive list of those programs that a State should coordinate with its SCHIP program and describe in its State plan. We are not providing a specific list because we recognize that States are different and that it is important to respect the variety of programs and coverage plans that operate in each State. The State should describe its relationships with other State agencies, low-income community organizations, and large insurance providers in the State that provide health insurance or health benefits to children. For example, if a State has a high risk insurance pool program, it should describe the coordination between this program and SCHIP; however, not all States have such insurance pools and the nature of these pools will vary among States.

Each State has a unique relationship with Federally Qualified Health Centers (FQHCs) and we believe that the flexibility of the State to structure these relationships should be maintained. Therefore, we have not required specific enrollment coordination procedures with FQHCs. However, we recognize the importance of enrolling SCHIP and Medicaid eligible children at sites where they typically receive care, such as FQHCs. Due to this relationship, FQHCs are vital partners in outreach and enrollment for this population. We encourage States to utilize these facilities in their outreach efforts.

These coordination provisions should not be interpreted to mean that we are requiring any particular effort on the part of the State to enroll children in private coverage.

Comment: One commenter indicated that it is extremely important for the regulations to specify what steps States must take in order to satisfy the requirement that separate child health programs be coordinated with existing Medicaid programs (including, for example, coordination of outreach and education efforts, screen and enroll requirements, transitioning from coverage under one program to the other, etc.). This commenter also recommended that the regulations require States to provide training to eligibility determination workers in both programs (as well as other workers) to ensure that appropriate transitions are made.

Several commenters believed that § 457.80(c) of the regulation (and not just the preamble to that section) should require States to describe the specific steps they will take to ensure that children who are found ineligible for Medicaid (at initial application or at redetermination) are provided with the opportunity to be enrolled in SCHIP. Another commenter pointed out that neither title XXI nor the proposed regulations take into consideration the movement of children between title XXI and title XIX programs as their eligibility status changes, nor have the Medicaid regulations been updated to reflect this possibility. A couple of these commenters suggested that perhaps the Medicaid regulations should be amended to address this issue. Another commenter believed that States should be required to describe how they will monitor these processes.

Several commenters indicated that the regulations should address the coordination of enrollment procedures for Medicaid and SCHIP at Federally Qualified Health Centers (FQHCs).

Response: We have taken the first commenters' suggestion into consideration and have revised the regulation at § 457.80(c) to refer to the requirements in §§ 457.350 and 457.360. States that implement separate child health programs are required to meet the requirements of §§ 457.350 and 457.360. States that implement separate child health programs and States that implement Medicaid expansionprograms must both describe the procedures for coordination required by § 457.80(c); however, the “screen and enroll” requirements of §§ 457.350 and 457.360 are not relevant or applicable to States that implement Medicaid expansions.

We agree that some more specificity with respect to the specific steps States must take to coordinate with Medicaid programs would be helpful in providing more clarity for States. At the same time, we believe that States need to retain the flexibility in coordinating SCHIP and Medicaid particularly in light of the specific administrative structures of the States' programs.

We agree with the commenters that the regulation should be revised to require States to describe in the State plan procedures to ensure that children who are found ineligible for Medicaid are provided the opportunity to be enrolled in SCHIP. We have revised § 457.80(c) to require that the State plan include a description of procedures designed to assist in enrolling in SCHIP those children who have been determined ineligible for Medicaid. This should occur both at the time of application and at the time of redetermination. The Medicaid regulations do not need to be amended because title XXI and these implementing regulations require coordination between SCHIP and Medicaid. We believe that State efforts to coordinate SCHIP with other public programs should include efforts to ensure that these processes are effective and have modified the Medicaid regulations at § 431.636 accordingly. In addition, we expect States to have mechanisms to evaluate the effectiveness of coordination between the two programs, as noted in § 457.350(f)(2)(i)(C).

11. Outreach (§ 457.90)

In § 457.90, we proposed to require a State to include in its State plan a description of the outreach process used to inform families of the availability of health coverage programs and to assist families in enrolling their children into a health coverage program pursuant to section 2102(c) of the Act. At proposed § 457.90(b), we set forth examples of outreach strategies including education and awareness campaigns and enrollment simplification. We discussed these outreach strategies in detail in the preamble to the proposed rule.

Comment: Many commenters expressed support for the requirement of outreach procedures and the examples provided. One commenter strongly supported the requirement that would require States to identify outreach procedures used to inform and assist families of children likely to be eligible for child health assistance under SCHIP or under other public/private health coverage programs. Another commenter supported the requirement of outreach strategies including education and awareness campaigns and enrollment simplification. Yet another commenter supported a streamlined application and enrollment process as a practical means of enhancing participation by qualified children, thereby increasing demand for needed medical and dental services.

Response: We note the commenters' support.

Comment: One commenter appreciated the efforts of HHS to maintain flexibility for the States in the outreach area as each State has established and continues to refine state-specific outreach efforts to identify SCHIP and Medicaid eligible children in their communities.

Response: We note the commenter's support.

Comment: One commenter suggested that we provide more examples of effective outreach. The commenter noted that States are being very creative in how they are conducting outreach and the two examples listed do not even “touch the tip of the iceberg”.

Response: There are many examples across the nation of successfully implemented, locally developed outreach campaigns. Because there are so many effective approaches for outreach, it is impracticable to list them in this regulation. Our intention was not to provide an exhaustive list of effective outreach methods in the preamble, but to highlight examples of a few major types of outreach strategies. HCFA, along with HRSA and other public agencies and private organizations, will continue to facilitate the sharing of “best practices” through information sharing sessions, technical assistance and guidance separate from this document.

Comment: One commenter expressed that outreach is critical to the success of SCHIP. This commenter noted that the State of Colorado has done a good job of disseminating information to the public that is easily understood.

Response: We agree with the commenter that outreach is critical to the success of SCHIP and it is for this reason that we included the requirements in § 457.90.

Comment: One commenter suggested that the discussion of outreach in the preamble to the proposed rule should have referred to “migrant and immigrant populations” instead of just “migrant populations” because of the importance of outreach for immigrants.

Response: States may choose to target outreach activities to special audiences known to have large numbers of uninsured children, such as migrant and immigrant populations, as well as other groups.

Comment: One commenter suggested that the discussion in the preamble to the proposed rule of the role of “clinics” should have included “Community Health Centers, Rural Health Centers, and other community-based clinics that provide a large proportion of care to uninsured patients'' in the list of providers that States should consider for distributing SCHIP information.

Response: The list of providers through which States could distribute program information was not intended to be exhaustive. We encourage States to distribute information through any provider that has the potential for reaching uninsured children, including community health centers, rural health centers, and other community-based clinics.

Comment: One commenter recommended that HCFA encourage States to involve community-based organizations in application assistance activities and describe the available sources of Federal funds for these activities. The commenter noted that there are numerous examples of staff at community based organizations being trained to conduct initial processing of applications for both Medicaid and separate SCHIP programs. Another commenter suggested we add to the examples of organizations listed as potential partners with the State those community-based organizations with expertise in doing outreach to, and providing services to, specific ethnic communities. This commenter also recommended that § 457.90(b) be amended to add examples of using community-based organizations. Another commenter noted that community-based organizations, including migrant and community health centers, are important outreach sites for reaching members of the Hispanic community. According to this commenter, Hispanic community-based organizations could coordinate with community centers, churches, Head Start, GED, Job Corps and WIC offices, and locations such as grocery stores, pharmacies, and other commercial centers as well.

Another commenter noted that many of the enrollment simplification methods, including outstationing of enrollment workers, are key to reaching more families, including families of children with special needs. States needto be versatile in utilizing community-based organizations to help spread the word of the program to reach enrollment goals, according to this commenter. This commenter indicated that mechanisms for explaining the importance of health coverage helps families recognize the benefits of health insurance for their children.

Response: We encourage States that implement separate child health programs to involve community-based organizations in application assistance activities. States that implement Medicaid expansions must follow all Medicaid rules relating to eligibility determinations, but are encouraged to use community-based organizations to help reach and assist low-income uninsured children to become enrolled. States can receive Federal matching funds for outreach activities; for States that establish separate child health programs, outreach matching funds are subject to the 10% limit on administrative expenditures.

State experience shows that one of the most effective methods for reaching ethnic groups is through community-based organizations. Not only are the employees of these organizations familiar with the language and culture of the groups they serve, they are trusted members of the community. We strongly encourage the use of community-based organizations with expertise in serving specific ethnic communities as part of an effective outreach campaign.

We agree that outstationing enrollment workers is an important method of reaching uninsured children and enrolling eligible children into SCHIP and Medicaid. Education and awareness campaigns and enrollment simplification procedures have proven to be highly effective strategies for successful outreach. Because there are so many effective methods of outreach, such as using community-based organizations and outstationing enrollment workers, we have not provided an exhaustive list in the regulation.

Comment: One commenter urged that dentists also be listed as participants in education and awareness campaigns, as well as State and local dental and pediatric dental societies.

Response: We encourage States to disseminate information through all providers that serve uninsured children.

Comment: One commenter suggested that HCFA discuss using the CDC's Immunization Registries to assist States in identifying families with uninsured children. In planning to transition away from the use of immunization clinics towards integrating immunizations as part of well-child care, we will have to pay more attention to potential financial barriers which could be appropriately addressed by linking immunization outreach to SCHIP/Medicaid outreach efforts.

Response: Several data sets are available to assist States in the identification of families of uninsured children, including the CDC's Immunization Registries. States should strive to link health coverage program outreach with other forms of health-related outreach in the State, such as immunization outreach.

Comment: One commenter believed States should use public benefit programs that serve low-income families with children to inform families about the availability of health coverage. The discussion regarding the use of existing “data sets” to identify uninsured children who are potentially eligible for coverage under Medicaid or SCHIP identifies the school lunch program participant lists as one of the sources. The commenter noted that the school lunch program only identifies low-income children, not specifically uninsured low-income children.

Response: We encourage the use of public benefit programs that serve low-income families to identify children who may be eligible for SCHIP or Medicaid, subject to applicable confidentiality rules. We appreciate the commenter's note that school lunch programs do not identify uninsured low-income children. We support the use of school lunch program participant lists, and other sources that assist in the identification of low-income families and inform them of potentially eligible children of the availability of SCHIP or Medicaid. Of course, in using these source of information, States must comply with applicable laws and should ensure confidentiality.

Comment: A few commenters believed that outreach strategies should be targeted specifically to adolescents and to their families. One commenter recommended the inclusion of the term “age” in giving examples of ways to reach diverse populations, and a distinction should be made between young children and adolescents. Other commenters believed that initiatives should include specific elements designed to reach underserved adolescent population such as runaway and homeless youth, youth in foster care or leaving state custody, immigrant youth, pregnant and parenting adolescents, and others. The commenters urged HCFA to encourage States to work with consumer groups and adolescent-oriented service providers to develop adolescent-specific outreach strategies and materials. One commenter believed the list of suggested outreach sites should also include as broad a range of adolescent-specific sites as permitted by Federal law. Adolescent medicine and service providers such as school-based health centers, family planning and STD clinics, Job Corps Centers, community colleges, summer job programs, and teen recreation centers should be added to the list of members of the provider community who can distribute program information.

Response: Adolescents under the age of 19 are included in the term “child”, which is defined in § 457.10 as an individual under the age of 19. States may implement outreach initiatives that are specifically designed to reach different targeted subpopulations, such as adolescent, runaway and homeless youth, youth in foster care or leaving state custody, immigrant youth, and pregnant and parenting children. We encourage States to disseminate information through providers, such as those listed by the commenter, that serve targeted subpopulations.

Comment: One commenter supported HCFA's decision to emphasize the particular importance of using the provider community to target education and awareness campaigns to families of newborns in the preamble to the proposed regulation. This commenter urged HCFA to include language that also stresses the importance of targeting pregnant women with education and outreach campaigns to facilitate prompt enrollment of newborns and their siblings.

Response: We encourage States to target special audiences, such as pregnant women and families of newborns, in their development of comprehensive education and awareness campaigns. Pregnant women and families of newborns will benefit from educational programs designed to inform them of the advantages of enrolling eligible newborns and other children in the family in health insurance, including obtaining well-baby care, well-child care and immunizations.

Comment: One commenter suggested that HCFA encourage States to provide materials and or eligibility workers to child care programs to identify and assist families of uninsured children served by the programs, as well as uninsured children of the programs' employees. These should include regulated and unregulated family-based child care providers as well as center-based facilities.

Response: We encourage States to disseminate information through child care programs and, when practicable, tooutstation eligibility workers at child care provider sites.

Comment: One commenter supported the inclusion in the proposed regulation text of language regarding education and awareness campaigns including targeted mailings and enrollment simplification. This commenter strongly urged HCFA to strengthen this section by requiring that States report to HCFA steps they have taken to simplify enrollment.

Response: We note the commenter's support of the proposed regulation language regarding education and awareness campaigns. We clarified in § 457.305 that States must describe in their State plan, policies governing enrollment and disenrollment, including enrollment caps, process(es) for instituting waiting lists, deciding which children will be given priority for enrollment, and informing individuals of their status on a waiting list. However, we are not requiring States to report on their mechanisms for simplifying enrollment beyond the requirement under § 457.90 to include a description of outreach procedures in their State plan. We also anticipate that States may include information regarding enrollment simplification in their annual report's description of successes and barriers in State plans design and implementation and approaches under consideration to overcome these barriers. We will continue to work with the States in a collaborative way to provide technical assistance and share information on successful enrollment mechanisms to encourage States to simplify enrollment.

Comment: One commenter recommended that HCFA emphasize the use of a simplified application system. This commenter noted that a simplified system makes it easier for a State to coordinate its Medicaid and separate SCHIP programs and is an essential ingredient for successful outreach.

Response: A major key to successfully reaching and enrolling uninsured children in SCHIP and Medicaid is a simple application process. We wish to emphasize that a simplified application process is vital to successful outreach and have included a reference to simplified or joint application forms in § 457.90(b)(2) as examples of outreach strategies States could employ.

Comment: One commenter recommended that HCFA place a limit on the number of pages of the individual State applications. The commenter noted that HCFA should also require that States provide joint Medicaid and SCHIP applications to reduce the paperwork on the part of the applicant as well as the eligibility workers, and to ensure that applicants are registered for the appropriate program.

Response: We disagree with the commenters' recommendations to limit the length of the applications and to require joint applications. As noted in the previous response, we strongly encourage a simplified application process and the majority of States with separate child health programs have developed joint applications. However, rather than prescribing specific outreach and application methods for all States, we are partnering with States to encourage the most effective approaches in each State.

Comment: A few commenters strongly encouraged States to conduct coordinated outreach campaigns that help families understand their children's potential eligibility for regular Medicaid or SCHIP-funded coverage. They urged that HCFA make clear that comprehensive statewide education campaigns are needed to inform the public about the availability of both SCHIP and Medicaid, and how to enroll eligible children in both programs. In addition, the commenters recommend reversing the order of the first and second paragraphs of the response. Similarly, they suggested that the list of “enrollment simplification” strategies should emphasize that these steps can be taken in Medicaid, as well as in separate SCHIP programs.

Response: We share the commenters' interest in, and commitment to, enrolling uninsured children in both Medicaid and SCHIP. We agree that a comprehensive, Statewide education campaign is needed to inform the public about the importance of the availability of both SCHIP and Medicaid. Virtually all of the steps that States have taken to implement simplified application procedures in separate child health programs can be taken in Medicaid, such as simplifying the application form, streamlining verification requirements, and eliminating any assets test. However, different rules apply in Medicaid with respect to who must make the final eligibility determination. While enrollment simplification in Medicaid is very important, it is not appropriate to address this particular issue in further detail in this final SCHIP rule.

As required by section 2102(c) and implemented in § 457.90, a State must inform families of children likely to be eligible for child health assistance under the plan or under other public or private health coverage programs of the availability of the programs, and must assist them in enrolling their children in such programs. Medicaid is one of these other public health coverage programs. Furthermore, section § 457.80(c) requires that the State plan describe the State procedures to coordinate SCHIP with other public health insurance programs. Again, Medicaid is considered a public health insurance program.

We also note that the way in which States design their outreach initiatives has potential fiscal implications. Medicaid provides a federal match for States' expenditures associated with outreach to Medicaid-eligible children. SCHIP funds may be used to pay for outreach to SCHIP-eligible children (subject to the 10% limit on administrative expenditures). Because all children who apply for SCHIP must be screened for Medicaid eligibility (as required by § 457.350), outreach targeted to children likely to be found eligible for SCHIP likely also will reach children eligible for Medicaid.

Comment: Several commenters suggested that bilingual outreach workers, linguistically appropriate materials, and culturally appropriate strategies must be provided when needed. One commenter noted that HCFA should elaborate on Title VI's mandate for linguistic access to services and give examples of how States and contracted entities can comply with this mandate. One commenter recommended that HCFA specify that States must provide access to linguistically and culturally appropriate health care services. In this commenter's view, States should be required to provide all written materials and application assistance in all applicable languages. States should also assure that linguistically and culturally appropriate outreach efforts are undertaken to all eligible populations. Another commenter recommended that HCFA require that applications be made available in the prevailing language in the community and that translation services be provided.

Response: As we seek to enroll all eligible children into coverage, States and HCFA should be sensitive to the cultural and linguistic differences of diverse populations. The diversity of the uninsured population requires outreach activities that are sensitive to the various cultural groups, their perceptions, needs and desires. For example, States could use outreach workers who live in the communities targeted for outreach, speak the language and know its cultural beliefs and practices. As noted in § 457.130, States must comply with all applicable civil rights requirements, including those related to language access. Within DHHS, the Office for Civil Rights (OCR) is responsible for assuring that DHHS-funded programs comply with these laws. States are encouraged to contact OCR for additional guidance and technical assistance about how to comply with these laws.

Comment: Another commenter believed that outreach efforts should utilize Hispanic community-based organizations to ensure culturally and linguistically competent approaches to outreach. This commenter believed that specific outreach and education material be developed for the Hispanic community. Eligibility workers stationed in communities with a large Hispanic population should be able to speak the language spoken by potential applicants. The use of television (Spanish language) and other media sources should be used to target the Hispanic community. Another commenter suggested that HCFA amend § 457.90(b) to add examples of using ethnic media for education and awareness campaigns.

Response: Again, we encourage outreach activities that rely on workers who live in the communities being targeted for outreach, speak the relevant languages and know their cultural beliefs and practices. While we will not amend the text of § 457.90(b) to add examples of using ethnic media for education and awareness campaigns, we recognize that this can be an effective means of reaching ethnic communities. States are encouraged to implement outreach initiatives that are specifically designed to reach different targeted subpopulations such as the Hispanic community and other ethnic groups.

Comment: One commenter urged HCFA to amend § 457.90(a) to require State plans to include a description of outreach strategies to reach children and families with special needs including limited English proficiency populations, and families whose children have disabilities. This commenter also urged HCFA to include in § 457.90(b) examples of outreach strategies targeted to special populations.

Response: As noted in previous responses, States must implement outreach strategies that comply with all civil rights requirements. A State is required to describe its outreach strategies in the State plan, but we do not believe that States should be required to describe their strategies to target all special audiences, in part because State outreach activities are often changing in response to information about what does and does not work. The examples presented in the regulation are not meant to be exhaustive. As noted in a response above, it is impracticable to list in regulation all examples of effective outreach strategies.

Comment: One commenter suggested the final regulation include encouragement of State partnerships with HRSA grantees. This commenter believed that HRSA's access points in the field can and should be accountable for assisting States in making SCHIP outreach a success.

Response: We encourage States to partner with HRSA grantees to identify potentially eligible children, inform families of the availability of SCHIP and other public health coverage programs and provide application assistance.

Comment: Several commenters recommended that HCFA require States to describe in their SCHIP plans the efforts that they have made to consult with “stakeholders” regarding the outreach strategies that are likely to prove most effective. Suggested stakeholders include enrollees, providers, local officials, appropriate state agencies, WIC clinics, early childhood programs, schools, consumer groups, and homeless assistance programs. Another commenter recommended the use of stronger language than that used in the preamble to ensure public and potential enrollee participation in the creation of outreach materials and strategies. The commenter suggested replacing the word “should” with “must” in the following sentence: “To be effective, messages and promotional materials must be developed with the assistance of people toward whom the message is directed.” Another commenter recommended that HCFA require States to describe how they will identify populations of uninsured children and how they will enlist the assistance of members of these populations in developing procedures specifically designed to reach these populations and enroll them.

Response: States are required in § 457.120 to describe the methods the State uses to involve the public in both the design and implementation of the program and to ensure ongoing public involvement once the State plan has been implemented. We encourage States to consult with a wide variety of interested parties, including those listed by the commenters, in the development of outreach materials and strategies and recognize that such consultation, in many cases, is a mechanism for identifying the most effective outreach strategies. However, we have not revised the regulation text to specify that States describe in the State plan their efforts at consultation in regard to developing effective outreach strategies beyond the general requirements for public input already addressed in § 457.120. While States should develop materials with the assistance of people toward whom the message is directed, we do not believe that requiring States to consult with specific interested parties would ensure meaningful public involvement and provide States with continued flexibility regarding how best to involve targeted audiences in the development of outreach materials. A further discussion of public involvement is found in § 457.120.

Comment: Several commenters believed that the proposed requirements for State outreach programs were excessive because SCHIP is not an entitlement program, there is an express cap on administrative expenditures, and some States may elect not to fund SCHIP programs at a level to justify extensive outreach.

Another commenter asserted that the proposed regulation is overly prescriptive regarding the organizations that should be involved in outreach, the materials that should be produced, and the cultural variations that should be represented.

Response: We disagree that the requirements set forth in the proposed rule were too prescriptive. Section 2102(c) of the Act requires that a State plan include a description of its procedures to inform families of the availability of health coverage programs and to assist families in enrolling their children into a health coverage program. Therefore, families must be provided certain information to ensure that they are aware of available child health assistance. In addition, because of the importance of providing information that can be easily understood by the family, we have further specified information requirements in § 457.110 of this final rule. These basic rules for assuring that families are informed of the availability of coverage do not impose onerous burdens on States and in fact, are consistent with the activities States have already undertaken.

A key goal of this program is to ensure that families are informed about available coverage and are encouraged to participate. No single approach to reaching potentially eligible children is provided in the statute and thus, we are not requiring in § 457.90 that a State implement specific outreach activities. We also acknowledge that Federal funding for SCHIP is capped according to amounts specified by title XXI and States may design outreach programs with these caps in mind. States have the option to decide which methodologies and procedures it will use to inform families of potentially eligible children about the availability of SCHIP.

Comment: One commenter recommended that States be required to evaluate outreach efforts to determine which methods have been most effective (that is, collecting data from enrollment sites and polling enrollees about how they heard of the program.) This commenter also recommended that States should gather information from families who requested applications but did not complete them in order to determine their reasons for not submitting a completed application. States should use this information to choose the most effective and efficient outreach strategies.

Response: To conduct a successful outreach campaign, States should assess which outreach methods are most effective at enrolling eligible children into SCHIP. We will work with the States in a collaborative way to provide technical assistance and share successful strategies. However, we are not requiring a State to conduct a formal evaluation. In § 457.750, we do require States to report on strategic objectives in the annual reports. These objectives often address effectiveness of outreach.

Comment: Two commenters expressed concern about States involving the provider community in the program. One commenter suggested that the final rule encourage the participation of health care professionals through simplification of the provider enrollment process. Several commenters recommended that States be required to conduct outreach to the provider community about SCHIP and to provide information and training about the administrative/business procedures of the programs. This commenter noted that pediatricians and other providers must be informed about the new insurance programs as well as about Medicaid. One commenter noted that HCFA should require States to make administrative rules and procedures for SCHIP as simple and as similar to Medicaid as possible; coordinating these programs eases the administrative burden on physicians.

Response: We encourage States to partner with the provider community as part of their efforts to deliver health care services to Medicaid and SCHIP enrollees. Given that the provider level is the point at which enrollees access health care services, active provider participation and an understanding of the program is essential to the program's success. We strongly encourage States to work with provider groups in the State on an ongoing basis to facilitate provider participation in the program. If simplifying the provider application process is identified as needed in a State to increase access for SCHIP enrollees, then we would expect that a State would make every effort to address the issue.

A State and its providers should build a relationship based on the mutual goal of providing access to quality health care services. We encourage States to provide information about the administrative and business practices of SCHIP and Medicaid to providers' offices. We are promoting dual enrollment of providers.

Comment: One commenter noted that outreach should include providing information about the mental health and substance abuse, benefits in SCHIP plans, if provided.

Response: Neither the proposed not the final rules require States, as part of the outreach provision to provide information on benefits, including information on mental health and substance abuse benefits, to the general public. However, § 457.110(b)(1) requires that information on the types of benefits, and amount duration and scope of benefits available under the program must be made available to applicants and enrollees in a timely manner. This would include information of mental health and substance abuse benefits, if they are available under the State's approved benefit package.

Comment: One commenter recommended that HCFA require copies of client communication materials so that HCFA can evaluate the accuracy, effectiveness and perhaps establish a “best practices” culture for States in their partnership with HCFA in meeting their joint missions.

Response: We disagree with the commenter's recommendation that HCFA require copies of client communication materials, although we typically review such materials in our monitoring visits, we agree that direct communication material should be clear and consistent with the State plan rules and plan to work to provide technical assistance and facilitate the sharing of “best practices.”

Comment: Several commenters urged HCFA to further discuss opportunities States have to outstation eligibility workers to help families enroll in separate child health programs. Several commenters suggested that HCFA include a full discussion of the advantages of using outstationed eligibility workers to enroll children in both Medicaid and SCHIP.

One commenter recommended that HCFA highlight that States are required under federal law to outstation workers at federally qualified health centers (FQHCs) and Disproportionate Share Hospitals (DSH) to conduct Medicaid eligibility determinations and one recommended that DSH hospitals and FQHCs are also ideal for outstationing sites in separate child health programs.

Other commenters believed that SCHIP plans should be subject to the Medicaid outstationing enrollment program requirements. One commenter noted that the requirement that States screen for Medicaid eligibility as part of the SCHIP application process makes it clear that State plans should be required to address how these requirements will be incorporated into the enrollment programs at FQHCs and DSH hospitals. Yet another commenter suggested that pediatricians' offices also serve as a prime location where families may receive help with the application process. Another commenter recommended that States consider outstationing eligibility workers at offices and clinics where uninsured families can be identified easily; and noted that monetary incentives can be offered to cover the cost of staff time associated with application assistance.

Response: We agree that outstationing eligibility workers is a promising outreach strategy for enrolling Medicaid and SCHIP-eligible children. “Outstationing” means locating eligibility workers or relying on other workers or volunteers, in locations other than welfare offices to assist with the initial processing of applications. (The final Medicaid eligibility determination must be made by the appropriate State agency.) States also can outstation eligibility workers in other locations and they can contract with community-based providers and organizations to assist with applications at other locations. Many locations, other than DSH hospitals and FQHCs, may be suitable for outstationing.

We disagree with the commenter's recommendation to include a full discussion of outstationing eligibility workers, and refer interested parties to the guidance issued on January 23, 1998, which provides the necessary detail. The Medicaid program already has specific regulations on this issue such as mandatory outstationing of workers at FQHCs and DSH hospitals, which can be found at 42 CFR 435.904. In separate child health programs, we encourage States to use outstationing, as it is one of many outreach strategies States have found to be valuable. Since Medicaid and SCHIP enrollment must be coordinated, Medicaid outstation sites provide a particularly important opportunity for enrolling children who are not eligible for Medicaid into SCHIP. In addition to Medicaid outstation sites, we recommend that States consider outstationing eligibility workers at othersites that are frequented by families with children such as schools, child care centers, churches, Head Start centers, WIC offices, Job Corps sites, GED program, local Tribal organizations, Social Security offices, community health centers, disproportionate share hospitals and pediatricians' offices.

Comment: One commenter urged HCFA to adopt a requirement in the final rule that States include in the State plan an assessment of the extent to which procedural barriers may be discouraging enrollment or reenrollment of eligible children. For example, a survey of families once enrolled but failing to reenroll might indicate the need for longer enrollment periods, or the need for acceptance of self-declaration rather than actual verification of certain items like child care costs. This commenter suggested that the State plan could be a vehicle for a State to explain efforts made to examine these procedural barriers and indicate steps proposed to reduce them.

Response: We encourage States to assess and simplify their application and enrollment processes in an effort to reduce barriers to enrolling uninsured children. A burdensome application and enrollment process can be a significant barrier to successful enrollment. However, we are not requiring States to perform an assessment of procedural barriers in their State plan, although we encourage discussion of these issues in the annual report. Rather, we will work with States in a collaborative way to provide technical assistance and share successful procedures.

Comment: One commenter urged HCFA to encourage States to implement presumptive eligibility for both Medicaid and SCHIP.

Response: Information on presumptive eligibility is found in Subpart C and § 435.1101 and in our responses to comments on these provisions of the proposed regulation.

Comment: One commenter urged HCFA to reiterate to States the importance of assuring that they have properly implemented the delinking of TANF and Medicaid. The commenter noted that we will not be able to achieve the title XXI goal of covering more children, or of coordinating coverage among various health programs, if children continue to miss out on the health care coverage for which they are eligible as a result of inadequate implementation of delinking. This commenter requested that HCFA repeat the key elements of the discussion of ways to effectively implement delinking included in HHS' June 5, 1998, letter to Medicaid Directors and TANF Administrators and its March 22, 1999, Guide entitled Supporting Families in Transition. Furthermore, the commenter believed HCFA should stress that States must modify their computer systems to assure that families are not accountable for delinking, and assure that families do not lose Medicaid coverage inappropriately and to assure that families are informed about, and enrolled in, Transitional Medical Assistance whenever appropriate.

Response: Improving health care coverage through the delinking of Medicaid and TANF is a high priority in our efforts to reduce the number of uninsured children. Our guidance on this important initiative will be issued separately from this regulation.

Comment: Two commenters commended HCFA for the preamble discussion of “enrollment simplification” and HCFA's other efforts on this issue. However, this one commenter recommended that we clarify for States the parameters established by Federal law for taking steps to simplify application, enrollment, and redetermination procedures. This commenter recommended repeating the information provided in its September 10, 1998 letter to State officials regarding the minimum Federal requirements for the application and enrollment process for Medicaid and separate child health programs, with respect to simplification and opportunities to reduce verification requirements.

Response: The Federal requirements for the application and enrollment process for Medicaid and SCHIP provide a great deal of flexibility to States to design an application and enrollment process that is streamlined and simple, and avoids burdensome requirements for families that apply for benefits. As indicated in our September 10, 1998 letter to State officials, certain Federal rules apply to these processes. If a State chooses to develop a separate child health program, the only Federal requirements for the application and enrollment process are those listed in Subpart C for: (1) A screening and enrollment process designed by the State to ensure that Medicaid eligible children are identified and enrolled in Medicaid; and (2) obtaining proof of citizenship and verifying qualified alien status. The Federal requirements for an application and enrollment process in Medicaid are explained in 42 CFR 435.900. As many States' efforts to simplify application procedures demonstrate, States have broad flexibility under Federal law to simplify and streamline the enrollment procedures for both Medicaid and SCHIP.

Comment: One commenter urged HCFA to place greater emphasis on the ultimate goal of outreach—enrollment. In this commenter's view, the preamble language should be strengthened to encourage States to implement strategies for coordinating the enrollment processes of benefit programs such as WIC, Head Start, the School Lunch Program, subsidized child care and others with Medicaid and SCHIP enrollment. Efforts to enroll children in health coverage programs at the same time they enroll in other benefit programs should be encouraged.

Response: Thousands of low-income children are served by programs such as WIC, Head Start, the School Lunch Program, subsidized child care and the Child Support Enforcement program. We strongly encourage States to coordinate enrollment in other benefit programs that serve low-income children with Medicaid and SCHIP enrollment. For example, States may implement a referral system between the State's Medicaid agency, SCHIP agency (if different from the Medicaid agency) and other benefit program agencies. However, the coordination of these processes may only be applied to the extent that Medicaid and SCHIP rules allow. States must continue to meet the applicable Federal requirements for application and enrollment processes for Medicaid and SCHIP.

Comment: Two commenters recommended that HCFA state the rules relating to its child support enforcement policy under Medicaid and SCHIP. They request that HCFA should explicitly note the prohibition on denying Medicaid to children on the grounds that their parents have failed to cooperate with establishing paternity, or with medical support enforcement. They ask that HCFA highlight that States do not need to include questions about non-custodial parents on their joint or Medicaid applications, instead they can solicit such information at the time they notify families of their eligibility for coverage. HCFA should also reiterate that, regardless of when a State solicits such information, it must apprize families of the opportunity to show “good cause” for not providing the requested information.

Response: The rules for eligibility for SCHIP and our responses to comments on the proposed rules in this area, are found in Subpart C. Eligibility rules for Medicaid are issued under title XIX authority and are not discussed in this regulation.

Comment: One commenter suggested the use of licensed professionalinsurance agents and brokers to enroll children. Insurance agents and brokers meet with uninsured adults every day, as well as the employers of many of the parents of uninsured children. Health insurance agents and brokers have a perfect opportunity to reach those that need the coverage the most, and since private health insurance plans already include a marketing component in their administrative cost, involving agents and brokers can be done with no extra cost to the program.

Response: As noted in § 457.340, States that implement separate child health programs may contract with independent entities to administer part or all of the eligibility determination process. A further discussion on the rules, and our responses to comments on the proposed rules pertaining to application processing is in Subpart C.

Comment: One commenter indicated that HCFA should include a description of the opportunity that States have to use innovative quality control projects to assure that allowing families to self-declare income does not increase the rate at which ineligible families get enrolled in coverage.

Response: Our requirements related to program integrity and responses to comments in this area are discussed in Subpart I.

12. Enrollment Assistance and Information Requirements (§ 457.110)

Section 2102(c) of the Act requires that State plans include procedures to inform families of the availability of child health assistance. In accordance with this provision, we proposed to require that a State have procedures to ensure that targeted low-income children are given information and assistance needed to access program benefits. Specifically, we proposed in § 457.110, that the State must make accurate, easily understood information available to families of targeted low-income children and provide assistance to them in making informed health care decisions about their health plans, professionals, and facilities. In order to assist families of targeted low-income children in making informed decisions about their health care, we proposed in § 457.110(b) to require that States have a mechanism in place to ensure that the type of benefits and amount, duration and scope of benefits available under SCHIP and the names and locations of current participating providers are made available to applicants and beneficiaries in a timely manner. This requirement also is consistent with the “right to information” provision of the President's Consumer Bill of Rights and Responsibilities and with the requirement in Section 2101(a) of the Act that child health assistance be provided in an effective and efficient manner.

We noted that the requirements set forth in this section apply to all States that are providing child health assistance, whether through a Medicaid expansion, a separate child health program, or a combination program, and whether they use fee-for-service or managed care delivery systems. Because Medicaid rules apply to States that implement Medicaid expansion programs, a State that is operating a Medicaid expansion program that uses managed care delivery systems would also be required to comply with the requirements of section 1932(a)(5) of the Social Security Act, enacted by section 4701(a)(5) of the BBA.

We proposed to require that information be easily understood and noted in the preamble that materials should be made available to applicants and beneficiaries in easily understood language and format. We noted in the preamble that the State should consider the special needs of those who, for example, are visually impaired or have limited reading proficiency, and the language barriers that may be faced by those who may use the information.

Comment: Several commenters expressed concern that the proposed rule did not expressly require States to provide information in a linguistically appropriate format, and one commenter recommended that HCFA add a requirement for linguistically appropriate information to the regulation. Several commenters stressed that HCFA should specify in the preamble that applicable title VI requirements related to linguistic accessibility to health care services and that HCFA requires States to communicate with enrollees in a language that they can understand.

One commenter recommended that HCFA provide examples of how States and contracted entities can comply with title VI requirements. Several commenters stated that HCFA should require States to take into account language in creating information materials. One commenter expressed concern about examples given in the preamble for overcoming language barriers. This commenter notes that two suggested methods should be used together as a part of a comprehensive plan to ensure linguistic access to services, but neither strategy alone would suffice to insulate the State from challenge under title VI.

Other commenters stated that HCFA should require States to provide translated oral and written notices including signage at key points of contact, informing potential applicants in their own language of their right to receive interpreter services free of charge. They further stated that bilingual enrollment workers and linguistically appropriate materials are necessary to ensure that limited English proficiency families make informed health care decisions. Another commenter feels that it is essential for HCFA to address the research-established higher risk for minority children to lack access to health insurance and health care in implementing SCHIP. This commenter noted that 14% of Americans speak a language other than English pursuant to Title VI of the Civil Rights Act. This commenter noted that HCFA has a responsibility to ensure that limited English proficient persons have a meaningful opportunity to participate in public programs.

Another commenter indicated that HCFA must elaborate on requirements to provide materials in alternative formats noted in the preamble and ensure that the rule includes an explicit reference to alternative formats. This commenter suggests that HCFA require materials be provided in accessible formats for persons with disabilities (e.g. tape recordings, large print, braille, etc.) and in appropriate reading levels for persons with limited literacy skills.

Response: After considering the commenters' concerns, we have taken the commenters' recommendation to add a linguistically appropriate requirement to the regulation. Section § 457.110 has been revised to require that the State must make accurate, easily understood, linguistically appropriate, information available to families of potential applicants, applicants, and enrollees, and provide assistance to these families in making informed health care decisions about their health plans, professionals, and facilities. In order to provide easily understood and linguistically appropriate information, States must assure meaningful communication for people who have limited English proficiency or have disabilities that impede their ability to communicate. This means that the State must assure that oral interpretation, sign language interpretation and auxiliary aids are provided to such potential applicants, applicants or enrollees. In addition, when necessary to ensure meaningful access, written information must be translated or made available in alternative formats such as large print or braille. “For guidance in this area and for suggestions on how States can best meet title VI requirements, States should consult the DHHS Office forCivil Rights' (OCR) “Policy Guidance on the Title VI Prohibition Against National Origin Discrimination As It Affects Persons with Limited English Proficiency,” (the LEP guidance) at 65 FR 52762 (August 30, 2000). The guidance is also available on OCR's web site at www.hhs.gov/ocr.

Comment: Two commenters urged HCFA to mandate language access policies by establishing numeric or proportional thresholds according to which States must provide translations of all written materials and by adopting minimum standards and procedures that must be met when those thresholds are crossed by a SCHIP program. One of these commenters asserted that it is important to require a numeric threshold rather than a proportion threshold as population densities vary greatly. Providing flexibility to States is important; however, flexibility should be granted in strategies to provide linguistically and culturally competent services, not in determining whether there is a need for these services in a particular state or service area, according to this commenter. This commenter recommended that States be required in their State plan to describe how they will target families who speak threshold languages and how linguistic services will be provided to ensure access to application and enrollment assistance.

Response: States must comply with all civil rights requirements, including those related to language access. Because States must already comply with all civil rights requirements, we are not specifying thresholds for translation of material. The Office for Civil Rights (OCR) has responsibility for and issues policy on these matters. States and other interested parties may contact OCR for information relating to compliance with title VI requirements.

Comment: Two commenters proposed that HCFA require States to describe in their plans the procedures they will use to identify population needs for specialized information techniques, and how they will develop effective informing procedures for persons whose primary language is not English or who have physical or mental disabilities which require special information techniques. The commenter felt that this is necessary in order for States to be in compliance (as required in proposed rule § 457.130) with title VI of the Civil Rights Act and with the Americans with Disabilities Act and Section 504 of the Rehabilitation Act of 1973.

Response: As discussed in previous responses, States are obligated to comply with civil rights requirements, including those related to language access. Because States must already comply with civil rights requirements as reflected in § 457.130, we are not further specifying procedures for identifying populations needing specialized information in this regulation.

Comment: One commenter recommended that HCFA prohibit States and contracted entities from requiring, suggesting, or encouraging beneficiaries to use family members or friends as translators except in cases of last resort. The commenter also recommended that the Department should prohibit the use of minors as translators in all instances.

Response: As noted above, the Office for Civil Rights recently issued guidance on the issue of translation services on August 30, 2000. The OCR guidance states that an enrollee/covered entity may not require an LEP person to use friends, minor children, or family members as interpreters. States and other interested parties may contact OCR for additional guidance on language access.

Comment: One commenter recommended that “right to information” principles for targeted low-income children be required for potential applicants as well. Information should be provided in an understandable format and in a language appropriate for the potential applicants as well as for the enrollees.

Response: We agree that it is important that potential applicants, as well as applicants and enrollees, have information about the program made available to them. Therefore, we have revised § 457.110(c) to require that, States must make accurate, easily understood, linguistically appropriate information available to families of potential applicants, applicants, and enrollees. States are encouraged to make information widely available, so that families have the opportunity to become familiar with the program.

Comment: One commenter supported the requirements in § 457.110 and the flexibility provided by suggestions in the preamble. This commenter believes that the proposed regulation fairly states the minimum information States must provide to prospective enrollees and enrollees. In this commenter's view, some of the preamble suggestions for additional information States might wish to provide are problematic and HCFA appropriately did not include these suggestions as requirements in the proposed rule. The commenter appreciates that the States are given the authority to determine how and when to provide materials in other languages and translation services.

Response: We note the commenter's support, but also need to make clear that States' discretion in this area is subject to the requirements of title VI.

Comment: One commenter recommended that HCFA add, in section 457.110(b)(1), cost sharing and other information that States must make available in order for families to make informed health care decisions.

One commenter suggested that HCFA include in the preamble a description of the types of more specific information that should be provided, such as access to information that assists health care consumers in making informed decisions and encourages accountability on the part of the health plans and providers. In this commenter's view, to alleviate concerns about overly burdensome requirements on States, additional categories of information could be made available to the public upon request.

Response: We have revised § 457.110(b) to require that certain information be made available to potential applicants, applicants, and enrollees. In addition to information on benefits and providers, § 457.110(b) requires that a State have a mechanism in place to make available information related to cost sharing, enrollment procedures, physician incentive plans, and review processes. We have added § 457.110(b)(2) to specify that cost-sharing requirements be made available. We have added § 457.110(b)(4) to require States to make available the circumstances under which enrollment caps or waiting lists may be instituted, including the process for deciding which children will be given priority for enrollment and how they will be informed of their status on a waiting list. We have also added § 457.110(b)(5) to require States to make available information on physician incentive plans described in § 422.210(b) of this chapter, as required by § 457.985 of this final rule. Finally, we have added § 457.110(b)(6) to require States to make available information on the process for review that is available to applicants and enrollees as described in § 457.1120. The information listed above is necessary to enable potential applicants, applicants and enrollees to make informed health care decisions.

In addition to the information that a State must make available, other basic information should be made available to families upon request. This information could include procedures for obtaining services, including authorization requirements; the extent to which after-hours and emergency services are provided; the rights and responsibilities of enrollees; any appeal rights that theState chooses to make available to providers; with respect to managed care organizations and health care facilities, their licensure, certification, and accreditation status; and, with respect to health professionals, information that includes, but is not limited to, education and board certification and recertification. A State that provides services through a managed care delivery system should consider making additional information, such as the policy on referrals for specialty care and for other services not furnished by the enrollee's primary care physician, available to families of targeted low-income children.

Comment: Two commenters recommended that HCFA delete § 457.110. These commenters feel that States should have complete flexibility in the use of administrative dollars because they are capped by title XXI. According to this commenter, development of rules in this area is inappropriate and reduces State flexibility to design its program in the way that best serves the needs of that State's children. They note that States should be permitted to make these decisions and allowed to adopt commercial sector practices or practices more consistent with Medicaid.

Several commenters recommended that no specific requirements with respect to the information provided to families be adopted and that the level of assistance provided be determined by the State. These commenters indicated their belief that the proposed regulation is far too stringent and prescriptive regarding the level of enrollment assistance States are required to offer families. They noted that, in the commercial sector, health plans are not required to provide enrollment assistance to individuals. The commenters appreciated the authority provided to States to determine how and when to provide materials in other languages and translation materials and observed that States realize the importance of providing this information to families. However, the commenters noted that States are limited to a 10 percent expenditure allotment for enrollment, outreach and administration and that requiring additional material would be onerous.

Response: We disagree that the requirements set forth in § 457.110 are too prescriptive. Section 2102(c) of the Act requires that State plans include procedures to inform families of the availability of child health assistance under a State's program and to assist them in enrolling in such a program. We have provided sufficient flexibility to allow a State to design strategies that best meet the needs of families while setting minimum requirements consistent with these statutory provisions for the information that must be provided to assist families of targeted low-income children in making informed decisions about their health care.

We recognize that States have limited federal SCHIP matching funds available for administrative expenses. However, certain information must be provided to families to ensure that they are informed of the availability of child health assistance. We note that most private sector health plans routinely make available the information we have specified in this regulation to potential applicants and enrollees, including benefit descriptions and lists of participating providers. Moreover, a key goal of this program is to ensure that families are informed about available coverage and are encouraged to participate.

Comment: One commenter noted that the outreach and enrollment requirements are extensive considering the 10 percent cap and recommends modifying the rule to address the needs of applicants by requiring general information, or deleting the reference to applicants.

Response: We disagree that making this information available to applicants is not feasible due to the 10% cap on administrative spending. We are not requiring that the State provide each potential applicant with the required information, but to make the information available to potential applicants, and provide the information to applicants and enrollees in a timely manner. Potential applicants and applicants should have the opportunity to become familiar with the State's program so that they can make informed decisions about the program and selecting a health plan or provider. In the event that a potential applicant or an applicant becomes an enrollee, the child's family will already be informed about the services that are covered and how to access those services. This is particularly important if the child has immediate medical needs.

Comment: According to one commenter, providing current provider participation information is an impractical requirement. States should be free to update provider participation information on a periodic basis. Other commenters stated that it is difficult to distribute hard copy information of up-to-date provider lists to all enrollees; however, they suggest that web sites and toll-free numbers be listed as suggested methods of making up-to-date information available.

Response: States are required to have a mechanism to ensure that the names and locations of current participating providers are made available to applicants and enrollees. States may update directories on a periodic basis as long as there is another mechanism through which enrollees can obtain current information. For example, a State could use a telephone hotline to make current information available to applicants and enrollees.

Comment: One commenter recommended that the State should be required to distribute information that lists the enrollee's benefits and an updated provider directory listing available providers as soon as a child enrolls in SCHIP. According to this commenter, States should be required to consistently update a database for the provider directory since providers will change often and materials should be available in all languages enrollees speak.

Response: Under § 457.110(b), States must make information available to potential applicants, applicants and enrollees in a timely manner. States should provide this information, which includes benefit and provider information, within a reasonable amount of time after an individual is enrolled in SCHIP if the information is not provided before enrollment. Information should be provided to enrollees so that they have sufficient time to choose a primary care provider and a health plan where there is a choice. As indicated in the previous response, States must have a mechanism to ensure that current provider information is available. Furthermore, States are required by § 457.110(a) to make information available to families of potential applicants, applicants and enrollees in an easily understood, linguistically appropriate format. States must also meet more general civil rights requirements as specified under § 457.130.

Comment: One commenter encouraged States to make enrollment assistance available in providers' offices and indicated that enrollment assistance should also be provided in child care settings. All families applying for child care assistance should receive information about SCHIP and Medicaid according to this commenter.

Response: We encourage States to make information about enrollment procedures available to health care providers. States that implement separate child health programs are required under § 457.370 of this final regulation to provide application assistance and health care provider offices are often a logical place toprovide such assistance. Further information on this requirement is found in § 457.361 and in our responses to comments on that section. We also encourage States to make SCHIP outreach material available to families applying for or receiving child care assistance. Child care agencies often serve the same children who States are trying to reach through their child health outreach strategies. As noted in § 457.90, no single approach to reaching children is prescribed in this regulation and multiple approaches are likely to be most effective.

Comment: One commenter supported the requirement that States make accurate, easily understood information relevant to enrollment available to families of potentially eligible children. The commenter urged HCFA to make clear that such information should be available to adolescents, as well as their families. In this commenter's view, provider information should indicate providers specializing in, or with an interest in, adolescent care.

Response: As defined in § 457.10, a child is an individual under the age of 19. Hence, the term “child” includes adolescents within that age range. We encourage States to consider ways to reach out directly to adolescents, such as by providing age appropriate outreach and education materials directly to adolescents since they may obtain health care services independently of their parents or family members. Furthermore, adolescents should be provided information that assists them in identifying and linking up with providers that specialize in adolescent health care. This information should be freely available to anyone who requests it.

Comment: One commenter recommended that HCFA require States to inform and educate parents of children with special health needs about special services available for their children and how to access these services.

Response: We encourage States to consider the unique needs of families with children with special health needs when developing procedures to provide information to families. If applicable, States should provide information regarding supplemental benefits for special needs populations. Further discussion on assuring appropriate treatment for enrollees with chronic, complex or serious medical conditions is found in § 457.495(b) and in our response to comments on that section.

Comment: A commenter suggested that HCFA emphasize that States take special steps to target educational material to families of newborns to ensure enrollment during the crucial first months of life when screenings, vaccinations, and preventive care visits are vital.

Response: We encourage States to take additional steps, beyond making the information required at § 457.110(b) available, to educate special audiences. Families of newborns will benefit from educational programs designed to inform them of the advantages of enrolling eligible newborns in health insurance, including obtaining well-baby care and immunizations. As required in § 457.495, a State plan must include a description of the States' methods for assuring the quality and appropriateness of care, particularly with respect to providing well-baby/well-child care and childhood immunizations, as well as other areas highlighted by that section. A further discussion of State plan requirements relating to appropriateness of care is contained in § 457.735 and our responses to comments on that section.

Comment: Several commenters expressed concern that the proposed rules do not provide clear, detailed standards under § 457.110. These commenters expressed that it would be appropriate for HCFA to provide more detailed regulatory requirements as to what is meant by the timely provision of information, criteria for easily understood information, and direction as to format. They recommend that States should list providers by corporate name and popular name, by individual provider names, and by the entity (such as health center).

Response: States should have the flexibility to design a mechanism for providing information that will best meet the needs of potential applicants, applicants and enrollees, including whether there is a need to refer to providers by more than one name and their entity. In the spirit of State flexibility, we do not agree with the suggestion to further define timely provision of information, criteria for easily understood information, or direction as to format—aside from what has already been define in applicable Federal law. No one approach is most effective in providing information in all settings and to all audiences; therefore, we are not adopting this suggestion.

Comment: One commenter noted that the family needs to understand the consequences of applying for a separate child health program and being found eligible for Medicaid.

Response: The requirements for providing this information to applicants are found in subpart C, including § 457.360(a), relating to informed application decisions.

Comment: One commenter strongly supported the requirement that States provide specific benefit and provider information in an easily understood format and language. This commenter recommended that the list of other basic information, as stated in the supplementary information, include consent and confidentiality laws for minors and be included in the final language of § 457.110(b). Another commenter noted that the section regarding the integration of the Consumer Bill of Rights should include protections for families as parental consent will generally be a requisite for treatment under SCHIP.

Response: We note the commenter's support for the requirement to provide information in an easily understood format and language. However, we disagree with the recommendation of requiring a State to provide information on consent and confidentiality laws for minors. While we agree that this may be a good idea, we believe that requiring that such information be provided would be an undue burden on States, and therefore we have not amended the regulation text to require that States provide this information to applicants or enrollees. However, we note that in § 457.1110(b)(4), we require States to assure that all contractors protect the confidentiality of information about minors and the privacy of minors in accordance with applicable Federal and State law.

Comment: One commenter felt that consumer participation in treatment should be “developmentally appropriate.” The commenter recommended that HCFA add language about appropriate participation of guardians and parents and the family in general.

Response: We encourage States and providers to communicate in terms that can be understood by consumers with varied developmental levels. Further information on assuring quality and appropriateness of care is found in § 457.495 and the responses to comments on that section.

Comment: One commenter requested clarification of HCFA's intent and expectations in requiring States to assist families in making health care decisions. Several other commenters requested clarification that assisting families does not include decisions relating to the direct provision of care, and that these decisions should be made between parents and the health care provider.

Response: States should have the flexibility to design a mechanism to assist families in making informed health care decisions about their healthplans, professionals, and facilities that best meets the needs of the families in the State. No one approach may be the most effective in assisting families. Section § 457.110(a) requires that the State provide assistance to families in making informed health care decisions about their health plans, professionals, and facilities. All decisions regarding treatment options should be made between the patient, the family (as appropriate), and the health care provider. In order to assist families in making health care decisions, States must, at a minimum, have a mechanism in place to ensure that information is provided as required by § 457.110(b).

13. Public Involvement in Program Development (§ 457.120)

States are required under section 2107(c) of the Act to include in the State plan the process that the State used to accomplish public involvement in the design and implementation of the plan and the method to ensure ongoing public involvement. We proposed to implement this provision at § 457.120.

In the preamble to the proposed rule we encourage States to provide for participation from organizations and groups such as hospitals, community health centers, and other providers, enrollees, and advocacy groups. We also suggested mechanisms for encouraging public involvement such as through holding public meetings, establishing a child health commission, publishing notices in newspapers, or creating other methods for public access to materials. We indicated that States may use any process for public input that affords interested parties the opportunity to learn about the State plan and allow for public input in all phases of the program.

Comment: Several commenters strongly encouraged public participation in all aspects of planning, implementation, evaluation and monitoring of SCHIP. These commenters, including several States, specifically cited the value of participation from individuals, families, Native Americans, organizations concerned with the health of adolescents, and other stakeholders. They noted the ability of public participants to assist federal State and local officials in identifying the characteristics and needs of enrollees, suggesting effective program designs and implementation techniques, and gathering and reporting information on enrollees' experiences with SCHIP. These commenters therefore supported the proposed requirements that State plans describe the procedures to be used to involve the public in the design and implementation of the program and ensure ongoing public involvement, and also supported the public notice requirement for State plan amendments. They also supported the ideas and suggestions contained in the preamble to the proposed rule. Some commenters suggested strengthening the regulatory provisions by requiring States to engage in specific activities and collect public participation data to ensure that State programs are effectively involving the public.

Response: We agree that public involvement is integral to the success of SCHIP in every State and appreciate the support of the commenters. We have included the requirement at § 457.120 for initial and ongoing public involvement, consistent with the statute, in order to ensure that it takes place. Our early experience with SCHIP as well as our experience with other programs demonstrate the benefit of public participation in identifying and resolving issues.

We encourage States to take a thoughtful approach to ensuring ongoing public involvement once the State plan has been implemented. We believe that the most effective approach to ensuring public input is to allow States the flexibility to design a process that affords interested parties the opportunity to learn about, and comment on, proposed changes in the program and to identify problems and make suggestions for improvement to the administering agency. States should employ multiple methods of obtaining public input and provide for participation by a wide variety of stakeholders. To encourage public involvement, a State can—

• Hold periodic public hearings to provide a forum for comments when developing or implementing their State plans and plan amendments;

• Establish a child health commission or a consumer advisory committee that is responsible for soliciting broader public opinion about the State plan and formulating the development of program changes, and have their meetings open to members of the public;

• Make presentations to, and solicit input from, child health, consumer advisory or medical care advisory groups and provider groups;

• Publish notices in generally circulated newspapers advertising State plan or amendment development meetings so the public can provide input;

• Create a mechanism enabling the public to receive copies of working proposals, such as proposed State plan amendments, and provide “stakeholders” with the opportunity to submit comments to the State (such as mailing information to “stakeholders,” including providers and families likely to be served by SCHIP or posting information about proposed changes on a State web site);

• Use a process specified by the State legislature prior to submission of the proposal;

• Provide for formal notice of, and comment on, program changes in accordance with the State's administrative procedure act; and/or

• Any other similar process for public input that would afford an interested party the opportunity to learn about and comment on proposed changes in the program and to offer comments on how the program is operating and suggestions for improvements.

In addition, all State plans, amendments, annual reports and evaluations are made available to the public on the HCFA web site to ensure ongoing public participation. States have flexibility in the manner in which they choose to involve the public in learning about and commenting on program design and implementation. While we will monitor States' activities and effectiveness related to public involvement, we do not accept the suggestion to require collection of public participation data in this final rule.

Comment: One commenter appreciated the prompt posting of State plan information, approval and disapproval letters, amendment fact sheets, and summary information on the HCFA web site.

Response: We appreciate the commenter's support for the information posted on HCFA's web site.

Comment: Several commenters requested that HCFA further discuss the inclusion of various stakeholder groups into the public process. Some urged HCFA to discuss in the preamble ways to include parents of SCHIP children in the planning and monitoring of benefits and service deliver systems. Others suggested expanding the provisions of the rule to specify types of groups that should be involved, including parents, children, teachers, advocates, providers of services to low-income and uninsured children, agencies involved in the provision of medical and related services, managed care entities that hold SCHIP contracts, and the mental health and substance abuse communities. Some commenters also recommended including involvement by physicians' organizations and dentists. One commenter suggested ensuring that public participants should have experience in caring for, and knowledge about, adolescents. Several of thecommenters also recommended that the rule specify the aspects of the plan that should be subject to public input, and should include eligibility, benefits, program design, provider qualifications and payment, outreach and enrollment procedures, and family cost sharing.

Response: We encourage States to involve all “stakeholders” throughout the development and operation of the program. “Stakeholders” may include parents, children, teachers, advocates, the mental health and substance abuse community, dental providers, physicians and physicians' organizations, managed care entities, and other groups with experience in caring for and knowledge of children, including adolescents. We do not agree that the regulation should specify groups that must be involved nor those program elements for which public involvement is required, because appropriate involvement may vary based upon the program element under consideration and circumstances within a specific State. States may ensure public involvement through a variety of approaches, as noted above. As part of its ongoing method for ensuring public involvement, States are encouraged to consult with stakeholders in the development of annual reports and evaluations. As indicated in previous responses, each State must make a concerted effort to involve the public on an ongoing basis but should have the flexibility to design the processes for involving the public in light of the circumstances in each State.

Comment: One commenter and its member organizations urge strengthened and more detailed requirements for public input at the State level. One commenter strongly recommended more guidance to the States about required public participation in the development and implementation of their plans, including substantial changes to the plans. Although this commenter's State policy makers have kept a coalition of stakeholders (including consumer organizations and health care providers) informed about many changes and have solicited the coalition's input on a regular basis, they noted in their view that numerous major program decisions that could have a significant impact on consumers have been made without public input. This commenter noted that the State SCHIP legislation requires the State agency to adopt rules, which requires a formal notice and hearing process, but stated that the agency has not yet promulgated a single rule. Another commenter urged that HCFA require specific methods for soliciting and obtaining public input, even if States are permitted to select from among alternate specified methods. Some commenters urged HCFA to specifically enforce public input requirements, and to ensure that the public involvement is meaningful.

Response: We do not agree that mandating a particular set of procedures would necessarily ensure meaningful public involvement. Methods that work effectively in one State may not work or be utilized effectively in another State. It is vitally important that a State employ carefully considered methods to ensure involvement of a wide variety of interested parties. This variation across States necessitates allowing a State the flexibility to tailor its methods to the population it serves and other State characteristics. We encourage States to employ multiple methods of obtaining public input. We monitor compliance with all State plan and regulatory requirements, including those related to public involvement.

Comment: A commenter noted that, in the preamble to the proposed rule, HCFA encouraged States to create a mechanism enabling the public to receive copies of working proposals in order to provide comments to the States and that most States have posted their original State plans on the web or have made ordering information available to the public. But this commenter stated that States have not extended this same courtesy with proposed amendments of State plans. States are often unwilling to share proposed amendments and changes in the program until the amendment has been approved by HCFA. This practice inhibits public involvement in the development of the program in this commenter's view. This commenter urged that HCFA design procedures that enforce the requirement that States ensure ongoing public involvement in the amendment process.

Response: We encourage States to provide working copies of State plan amendments to interested parties so they may provide valuable input into the design of program changes. However, we are not requiring States to do so. States must have a method to ensure ongoing public involvement beyond the initial implementation of the program and we will monitor compliance with all requirements, including those related to ongoing public involvement. We would like to be informed if interested parties do not believe they have adequate means to provide input into the SCHIP design and implementation.

Comment: One commenter strongly encouraged HCFA to provide further elaboration in the rule itself on strategies that States should use to promote public involvement. Specifically, the commenter recommended that the final rule should require States to offer the public several different avenues for providing substantial input into the design and ongoing implementation of SCHIP, including public involvement in “substantial” State plan amendments. For example, the commenter noted that the final rule could specify that States can satisfy the requirement to involve the public in SCHIP by undertaking a number of the following activities: convening public hearings; advertising public hearings in generally circulated newspapers; making presentations to child health, consumer advisory or medical care advisory groups; mailing information about program implementation to stakeholders, including providers and families likely to be served by SCHIP; and posting information about the status of SCHIP implementation on a State web site. In this commenter's view, it is essential that the final rule do more than list possible examples of how States could comply with the public input requirement, and, in particular, not suggest that undertaking one of a long list of strategies will be sufficient.

Response: We encourage States to use multiple methods of obtaining public input. In a previous response in this section, we have provided further suggestions promoting public involvement and a number of these suggestions reflect this commenter's suggestions. However, as noted and explained previously, we have not revised the regulation to require or include specific methods for ensuring public involvement.

Comment: One commenter applauded HCFA's efforts to increase access to information and believes that requirements for State and local level input as the programs are developed and amended, including specification of a variety of clearly defined methods of providing input, can only help SCHIP.

Response: As indicated in previous responses in this section, we encourage States to take a thoughtful approach in developing methods to ensure public involvement, however, specifying methods in regulation is not necessarily the most effective way of ensuring public involvement within each State.

Comment: One commenter set forth the view that the methods described in the preamble for ensuring public involvement are excellent if used and publicized. This commenter recommended that States be required to report the methods used annually so that advocates and family members can understand the mechanisms for participation. In the view of thiscommenter, small public notices are not a meaningful way to reach consumers and this commenter is using the web postings by HCFA to help educate parent leaders. This commenter encouraged families to go to the web site to find their States' annual report to help them understand the program and become involved in the SCHIP process. If the annual report contains no reference to public input, there is no opportunity for participation by consumers and the rules regarding public involvement are rendered useless, in this commenter's view.

Response: We appreciate the commenter's support of our suggested methods for public involvement. However, we disagree that the rules for public involvement are useless unless we require a description of the State's methods in the annual report. States are required to include in the State plan a description of the method the State uses to ensure ongoing public involvement and we will monitor compliance with this State plan requirement as we would monitor compliance with other Federal requirements. To reach a wide variety of stakeholders, we encourage States to use multiple methods of seeking input.

14. Provision of Child Health Assistance to American Indian and Alaska Native (AI/AN) Children (§ 457.125)

To implement section 2102(b)(3)(D) of the Act, we proposed to require a State in § 457.125(a) to include in its State plan a description of procedures used to ensure the provision of child health assistance to American Indian or Alaska Native children. We also requested in § 457.125(a) that the State officials responsible for SCHIP consult with Federally recognized Tribes and other Indian Tribes and organizations in the State on the development and implementation of the procedures used to ensure the provision of child health assistance to American Indian or Alaska Native children. Although not specified in the regulation, we had indicated in the preamble that such groups could include regional Indian health boards, urban Indian health organizations, non-Federally recognized Tribes, and units of the Indian Health Service.

We proposed in § 457.125(b) that we will not approve a State plan that imposes cost sharing on AI/AN children. In the preamble, we stated our view that the imposition of cost sharing on children in AI/AN families may adversely impact the State's ability to ensure coverage for this group as required under section 2102(b)(3)(D) of the Act. This provision applies to States that operate either a separate child health program or a Medicaid expansion program, including Medicaid expansion programs under a section 1115 demonstration project.

Please note that all comments and responses relating to the policy of prohibiting cost sharing for AI/AN children are addressed in the summary for Subpart E.

Comment: One commenting State agreed with the provision at § 457.125 that requires procedures to ensure that tribal children are offered SCHIP, and requests that States consult with federally recognized and other tribes. One commenter recommended that HCFA should strengthen § 457.125 by requiring State officials responsible for SCHIP to consult with federally recognized tribes and other Indian tribes and organizations in their States on the development and implementation of child health assistance to American Indian and Alaska Native children.

One commenter added that communication with various AI/AN groups (including IHS, tribal representatives, and urban Indian groups and organizations) is an effective way to accomplish the goal of enrolling AI/AN children in SCHIP. However, this commenter noted that the States should only be required to consult with Federally recognized Tribes. This commenter also noted that Federally recognized tribes should be the ones who ask that IHS or Indian organizations participate in coalitions or meetings to avoid confusion about who represents those tribes. In this commenter's view, federal agencies can enhance tribal/State relations by supporting tribal/State meetings and by providing technical assistance.

Response: We have taken these comments into consideration and agree with the recommendation to require interaction with Indian Tribes. We have moved and revised the provision at § 457.125(a) requesting that a State consult with Federally recognized Tribes and other Indian tribes and organizations in the State on the development and implementation of the procedures to ensure the provision of child health assistance to American Indian and Alaska Native (AI/AN) children. Section 2102(b)(3)(D) of the Act requires a State to include in its plan a description of procedures used to ensure the provision of child health assistance to AI/AN children. A State cannot meet the requirement for ensuring the provision of child health assistance to AI/AN children without interaction with Tribes. Additionally, Section 2102(b)(3)(D) of the Act requires that child health assistance is provided to Indians. We have, therefore, revised the language at § 457.120(c) to require interaction with “Indian Tribes and organizations in the State” as opposed to limiting the interaction to Federally recognized Tribes. The final language at § 457.120(c), given these revisions, requires that a State plan include a description of the method the State uses to ensure interaction with Indian Tribes and organizations in the State on the development and implementation of the procedures required in § 457.125(a) to ensure the provision of child health assistance to AI/AN children.

Given our broader definition of those Tribes that must be interacted with, we do not believe it is necessary to further interpret the definition of a “Federally recognized Tribe” or who should attend meetings. States are required to involve a range of other “stakeholders” pursuant to § 457.120 (a) and (b), as described earlier. We do support Tribal/State meetings related to SCHIP and are willing to provide technical assistance as needed in this area.

Comment: Multiple commenters expressed that States have a genuine interest in consulting with tribes and their related organizations to ensure that all children receive available health coverage, but caution against dual State and federal consultations that may result in confusion.

Response: The required interaction between States and Indian Tribes and other organizations in the State does not replace the federal government's consultation. The Federal government continues to be required to consult with Federally recognized Tribes. We have revised the language of the regulation to specify “interaction” to make clear that State actions do not replace the Federal consultation role.

Comment: One commenter urged that HCFA make federal matching funds available at the 100 percent rate for expenditures under separate child health programs for services to AI/AN children received through IHS facilities, the same rate available for such expenditures under Medicaid. According to this commenter, the inequitable treatment of separate child health programs will negatively affect the ability of such programs to serve more SCHIP-eligible children.

Response: Unlike Medicaid, title XXI does not provide the authority for Federal financial participation (FFP) at a level higher than the enhanced title XXI FMAP for any service including those provided at IHS or tribally-administered facilities. A statutory change by Congress would be required in order to permit 100 percent FFP for SCHIP services provided through IHS and tribal facilities.

15. Civil Rights Assurance (§ 457.130)

In § 457.130, we proposed to require the State plan to include an assurance that the State will comply with all applicable civil rights requirements. This assurance is necessary for all programs involving continuing Federal financial assistance in accordance with 45 CFR 80.4 and 84.5. These civil rights requirements include title VI of the Civil Rights Act of 1964, title II of the Americans with Disabilities Act of 1990, section 504 of the Rehabilitation Act of 1973, the Age Discrimination Act of 1975, 45 CFR part 80, part 84 and part 91, and 28 CFR part 35.

Comment: One commenter noted that this section correctly reminds States that they are required to comply with civil rights laws. However, the commenter noted that this section of the regulation and the preamble should explain that States will violate civil rights laws if they fail to provide linguistically appropriate and accessible services. The commenter recommended that the final regulation should provide more information on each of the listed civil rights statutes and should include examples of violations and compliance. Many other commenters made similar recommendations.

Response: Because primary authority within the Department of Health and Human Services for enforcement of civil rights requirements is held by the Office for Civil Rights, interested parties should contact the Office for Civil Rights directly for more information on compliance with these requirements. States are required by civil rights law to provide linguistically appropriate and linguistically accessible services, as described in the response to the following comment.

Comment: Several commenters noted their view that it is very important for HCFA to articulate clearly the States' obligations under current law (Title VI, 45 CFR Part 80) to provide linguistic access. Three commenters specifically recommended that HCFA, at a minimum, should incorporate in this regulation the standards for providing linguistic and cultural access to services set forth in a 1998 Guidance Memorandum issued by OCR. These commenters also suggested that even stronger standards than those provided by the Guidance Memorandum are often necessary and recommended that HCFA mandate aggressive language access policies by establishing numeric or proportional thresholds, and then mandate minimum standards and procedures that must be adopted when those thresholds are met. They recommended that HCFA also should give consideration to ensuring the cultural and linguistic competency of a SCHIP program. They noted that, for example, it cannot be assumed that because a worker is bilingual, he or she is sufficiently familiar with medical terms and concepts in both languages to provide competent translation services.

Several commenters recommended that the Department should also prohibit States and participating contractors from requiring, suggesting, or encouraging beneficiaries to use family members or friends as interpreters (which should only be done as a last resort), and absolutely prohibit the use of minors as interpreters, regardless of the enrollee's willingness. In the view of these commenters, there also should be explicit instructions to provide clear, translated signage and written materials informing applicants and clients of their right to receive bilingual or interpreter services. A different commenter agreed with the above recommendation and emphasized that access to SCHIP-covered services needs to be provided regardless of the number of individuals from a given language group who live in a given service area and regardless of how obscure the language is. Another commenter also suggested that the States and the Department analyze gaps in data needed for establishing the above described thresholds, and that States and the Department should consider encouraging providers to have paid, trained interpreters or bilingual providers on staff because face-to-face interpretive services are more effective.

Yet another commenter also suggested the adoption of minimum standards for the provision of SCHIP services to persons with limited English proficiency (LEP). This commenter suggested that these minimum standards should include: written policies and procedures on the development, dissemination and use of medical interpreter services; cultural competency standards and training; notice of the right to a free interpreter at all points of contact; prohibition on the use of minors as interpreters and the use of family and friends as a last resort for interpretation and only after being given notice of the right to a free interpreter.

Other commenters suggested that HCFA give examples of how States and contracted entities can comply with title VI, such as providing bilingual workers selected through formal criteria for translation vendors, and linguistically appropriate materials that include accommodations (such as oral, audio, or video formats) for limited English proficiency speakers who do not read well in their primary language or whose languages lack a written version.

Response: A State's obligation to provide linguistically appropriate communication and services flows from a federal fund recipient's obligation to ensure equal access under title VI. Further discussion of language access is found in the responses to comments on § 457.110(a).

Comment: One commenter is concerned that the section does not address the civil rights duties of contractors. Many States contract and sub-contract with entities to administer their programs. This commenter recommended that § 457.130 explain that contracted entities are also required to comply with civil rights laws. In addition, the commenter felt the following sections, and the discussions of each in the preamble, should emphasize that the Department requires contracting entities to comply with civil rights protections: § 457.940 (procurement standards); § 457.945 (certification for contracts and proposals), § 457.950 (contract and payment requirements including certification of payment information). Other commenters agreed with the recommendation that this section should address the civil rights duties of contractors and that the other sections in Subpart I should be amended similarly as well.

Response: A State's contractors, subcontractors and grantees are required to comply with all civil rights laws. When the State contracts with other entities, the State must ensure that its contractors comply with all applicable laws. Because § 457.130 already requires a State to provide an assurance that the State will comply with all applicable civil rights laws, we do not agree that Subpart I should be amended. Section 457.130 already places an obligation on a State to assure that it performs SCHIP-related activities in accordance with applicable federal laws.

Comment: A couple of commenters requested that HCFA amend many other sections to “incorporate enrollment assistance.” Specifically, the commenters recommended requiring that States:

• Provide bilingual outreach workers, linguistically appropriate materials, and culturally appropriate strategies when needed (§ 457.90);

• Provide translated oral and written notices, including signage at key points of contact informing potential applicants in their own language of their right to receive interpreter services free of charge (§ 457.110);

• Include the use of bilingual workers, translators, and linguisticallyappropriate materials for limited English proficiency populations as required under title VI, in application assistance (§ 457.361(a));

• Take reasonable steps to convey information about notices of rights and responsibilities and decisions concerning eligibility in a culturally and linguistically appropriate manner to ensure that all applicants, including those who are limited English proficiency, are given notice of, and understand, their rights, responsibilities, and decisions concerning their eligibility (§ 457.361(b), (c));

• Provide bilingual workers and linguistically appropriate materials regarding grievances and appeals when needed (§ 457.365);

• Provide notice to beneficiaries about their rights to linguistic access to services (§ 457.995).

Other commenters urged that cultural competency and linguistic accessibility requirements be incorporated throughout the provisions on information, choice of providers and plans, access to emergency services, participation in treatment decisions, respect and nondiscrimination, and grievances and appeals.

Response: A State must comply with civil rights requirements in the operation of all elements of its program. We do not agree that other sections of the regulation, as suggested by the commenter, should be amended since a State must provide an assurance pursuant to § 457.130 that the State plan will be conducted in compliance with all civil rights requirements.

Comment: One commenter noted that, without explanation, HCFA dropped sexual orientation, genetic information, and source of payment as part of the civil rights assurance in its effort to integrate the Consumer Bill of Rights. This commenter requested that HCFA include the source of payment in the final regulation, as it is a major source of discrimination in access to dental services.

Response: The assurance of compliance with civil rights law seeks to assure that the State and its contractors comply with applicable civil rights laws and regulations, without specifying particular policies, procedures, or actions that would constitute a violation of those laws. Generally, to the extent that actions of the State or its contractors based on sexual orientation, genetic information or source of payment discriminate against individuals based on race, ethnicity, color, sex, age or disability, those actions most likely would constitute a violation of the civil rights laws and regulations. States and organizations should contact the Office for Civil Rights (OCR) for more information regarding specific prohibited actions under the civil rights laws and regulations enforced by OCR.

Comment: One commenter asked whether States will be able to sign the civil rights assurance if HCFA implements § 457.125 regarding cost sharing for AI/AN children.

Response: As further discussed in § 457.535, the exemption of AI/AN families from cost sharing is consistent with title VI of the Civil Rights Act of 1964. Therefore, the implementation of § 457.125 will not affect a State's ability to provide an assurance that it will comply with applicable civil rights requirements.

16. Assurance of Compliance With Other Provisions (§ 457.135)

In accordance with section 2107(e) of the Act, we proposed in § 457.135 to require that the State plan include an assurance that the State will comply under title XXI with the following provisions of titles XIX and XI of the Social Security Act:

• Section 1902(a)(4)(C) (relating to conflict of interest standards).

• Paragraphs (2), (16) and (17) of section 1903(i) (relating to limitations on payment).

• Section 1903(w) (relating to limitations on provider donations and taxes).

• Section 1132 (relating to periods within which claims must be filed).

Section 2107(e)(2)(A) of the Act also provides that section 1115 of Act, pertaining to research and demonstration waivers, applies to title XXI. This provision grants the Secretary the same section 1115 waiver authority in title XXI programs as in title XIX programs. In the preamble to the proposed rule, we discussed in detail the extent to which waivers of both title XIX and title XXI provisions should be granted under SCHIP. Specifically, we stated that while the law permits the Secretary to use section 1115 authority to waive provisions of title XXI in order to pursue research and demonstration projects, we do not believe it would be reasonable to grant waivers under section 1115 before States have experience in operating their new title XXI programs and can effectively design and monitor the results of demonstration proposals. We stated that we would consider a section 1115 demonstration proposal for waiver of title XXI provisions only after a State has had at least one year of SCHIP experience and has conducted an evaluation of that experience. We invited comments on the best approach to considering section 1115 waivers of title XXI provisions.

We noted that because both the Federal government and the States have substantial experience in administering title XIX, we believed that we were in a position to consider and grant waivers of title XIX provisions even when the demonstration project involves the SCHIP-related enhanced match. We stated that we would consider a request for section 1115 waivers of title XIX provisions applicable to Medicaid expansion programs without any additional experience with the program.

We only received comments in this section related to our statements in the preamble regarding consideration of section 1115 demonstrations. Therefore, we are implementing the above described regulatory provisions as set forth in the proposed rule. We will be considering those comments as we develop our policies on section 1115 demonstration projects under title XXI.

17. Budget (§ 457.140)

Section 2107(d) of the Act specifies that a State plan must include a description of the budget, updated periodically as necessary, including details on the planned use of funds and the sources of the non-Federal share of plan expenditures, including any requirements for cost sharing by enrollees. We proposed in § 457.140 that the State plan must include a budget that describes both planned use of funds and sources of the non-Federal share of plan expenditures (including any requirements for cost sharing by beneficiaries) for a 3-year period. We also proposed to require that an amended budget included in a State plan amendment include the required description for a 3-year period. We proposed that the planned use of funds include the projected amount to be spent on health services, the projected amount to be spent on administrative costs, and assumptions on which the budget is based.

Please note that additional comments on budget, particularly related to State plan amendments, are addressed in the comments and responses to § 457.60.

Comment: One commenter believed that budget issues did not necessarily tie well with the submittal of plan amendments. For example, a State may go several years without submitting a plan amendment. Several commenters suggested that budget data would best be gathered through the annual reporting process through which States are required to update budget estimates on a yearly basis.

Another commenter stated that the submission of a three-year budget, to the extent that it requires specific budget items, has the potential for being burdensome. This commenter, along with another, expressed that a two-year budget estimate should be sufficient for federal planning purposes. One State indicated that it operates on an annual budgetary cycle and that all budgets are developed by the legislature and approved by the Executive branch annually, so the State does not have any legal authority to develop three-year budget projections.

Response: We agree with the first commenters' suggestion and have reconsidered the requirement at proposed § 457.140 that the State plan, or plan amendment as required at § 457.60(b), must include a budget that describes the State's planned expenditures for a three-year period. We have revised § 457.140 to require that the State plan or plan amendment include a budget that describes the State's planned expenditures for a one-year period. Furthermore, because we are requiring that the budget be updated periodically through the annual report and through quarterly financial reporting, we have revised the requirement at proposed § 457.60(b), (now § 457.60(d)) to require a one-year budget only with State plan amendments that have a significant budgetary impact. Examples of these types of amendments would be those that related to eligibility, as required by § 457.60(b)(1), or cost sharing as required by § 457.60(b)(6) or benefits as required by § 457.60(b)(4). For example, if the amendment added or dropped a package of dental benefits that would have an impact on expenditures, the State would need to submit an amended budget with the amendment. The description of the budget must be submitted in accordance with § 457.60(d) and must continue to meet the requirements of § 457.140(a) and (b). The changes to these provisions will relieve States from having to provide budget descriptions with all State plan amendments. At the same time, we will continue to require a description of planned expenditures for a three-year period each year through the annual report from every State with an approved State plan.

Because States have up to three years to spend each annual allotment, a three-year budget is useful to show if States are planning to use their unused allotments in the succeeding two fiscal years and if they, therefore, anticipate a short fall in Federal funding. We realize that a State must base the required information on projections and that the budget projections submitted to HCFA are not approved by a State's legislature. However, it is important to have this information to ensure the State has adequately planned for its program and to analyze spending of the allotments.

18. HCFA Review of State Plan Material (§ 457.150)

Section 2106 of the Act provides the Secretary of DHHS with the authority to approve and disapprove State plans and plan amendments. The authority vested in the Secretary under title XXI has been delegated to the Administrator of HCFA with the limitation that no State plan or plan amendment will be disapproved without consultation and discussion by the Administrator with the Secretary. We also described this delegation of authority at proposed § 457.150(c).

Under the authority of section 2106 of the Act, we proposed at § 457.150(a) to specify that HCFA reviews, approves and disapproves all State plans and plan amendments. We noted in the preamble to the proposed regulation that the Center for Medicaid and State Operations within HCFA has the primary responsibility for administering the Federal aspects of title XXI. We also noted therein that we would continue to work jointly with the Health Resources and Services Administration (HRSA) to implement and monitor the new program as a part of the Department's overall strategy to support coordination with other Federal and State health programs in providing outreach to uninsured children and promoting coordination of care and other public health interventions. Consistent with the Department's strategy, the current State plan and plan amendment review process involves collaboration with other agencies within the Department and Administration as well. The approval or disapproval of all State plans or amendments presently requires consensus among all of the participating Department components.

Section 2106 does not speak of partial approval or disapproval of a State plan or plan amendment. Thus, at § 457.150(b) we proposed that HCFA approves or disapproves the State plan or plan amendment only in its entirety. We noted in preamble to the proposed regulation that as appropriate and feasible, States may withdraw portions of a pending State plan or plan amendment that may lead to delay in its approval or disapproval. In § 457.150(d), we proposed that the HCFA Administrator designate an official to receive the initial submission of a State plan. In § 457.150(e), we proposed that the HCFA Administrator designate an individual to coordinate HCFA's review for each State that submits a State plan.

Comment: Many commenters questioned the necessity of approving or disapproving a State plan or amendment only in its entirety as provided under proposed § 457.150(b). In the opinion of these commenters, this provision may detrimentally affect what States submit. In these commenters' view, even though a State may have an innovative idea that has come out of the development and public consultation process, it may be reluctant to “push the envelope” with the idea for fear that it may hold up a larger state plan or plan amendment. If only a single provision is preventing approval, it would be more effective to approve the rest of the submission and then work with the State on the questionable provision. One of these commenters noted their view that this requirement limits the State flexibility that Congress envisioned in passing title XXI.

A different commenter believed this provision to be administratively burdensome because it encourages States to submit each component of an amendment separately rather than one complete document that provides a more comprehensive picture of the program. This commenter also requested that HCFA approve sections of a plan amendment and allow the State to implement the changes while other sections are under review. Yet another commenter also indicated their belief that the approval process should have more flexibility. If a State plan or plan amendment can be implemented without inclusion of that part, this commenter believes that the entire plan or plan amendment should not be held up for that one small part. Another State concurred with this view. One more commenter says that the provision may be an impediment to, or cause delay in, making innovative changes to a State's program. In this commenter's view, States will be forced to prepare amendments in a piecemeal fashion, causing more work and a greater administrative burden. It would be more efficient for States to be allowed to submit comprehensive program changes that HCFA can approve or deny in part according to this commenter.

Response: HCFA approves or disapproves the State plan or plan amendment only in its entirety because section 2106 does not permit the Secretary to partially approve or disapprove a State plan or plan amendment. Additionally, it would be administratively burdensome for HCFA to track and monitor only portions of approved State plans or plan amendments. However, States maywithdraw or change portions of a proposed State plan or plan amendment at any time during the review process. States need not submit components of a State plan amendment separately, because States may withdraw portions of a pending State plan amendment that may lead to delay in its approval or disapproval of the amendment. Additionally, States have the option to split a single State plan amendment into separate amendments during the review process. Given these options, we do not agree that this provision necessarily limits State flexibility or increases administrative burden and we will work with States to prevent this from occurring.

Comment: Several commenters asserted that the regulations should not provide for review of whether previously approved State plan material complies with title XXI requirements, unless federal law or regulations change. These commenters read section 2106 to mean that, once a State plan provision has been approved, the provision cannot be revoked unless the statute is amended. These commenters specifically argued that new regulations or guidance documents do not provide a basis for revoking approval of a State plan provision. And these commenters assert that disturbing previously approved State plan provisions could disrupt the stability of programs and continuity of care for children. Some commenters, while generally agreeing, indicated that, at a minimum, States should have a reasonable time to come into compliance.

Response: We disagree that the scope of HCFA's authority to determine whether previously approved material continues to meet the requirements for approval should be restricted to changes in statutory or regulatory requirements. Sections 2101(b) and 2101(a)(1) require State plans to be consistent with the requirements of title XXI. Accordingly, we base approval or disapproval of State plan and plan amendments on relevant Federal statutes, including title XXI and title XIX, regulations, and guidelines issued by HCFA to aid in the interpretation of the statutes and regulations. Regulations and guidelines are issued by HCFA in order to implement relevant statutes.

States may continue to rely on approval of a State plan or plan amendment and the receipt of federal matching funds associated with such approval. States will be given an opportunity to correct any parts of the State plan that no longer meet the conditions for approval. Compliance actions will not be imposed without the opportunity for correction afforded by section 2106(d)(2) of the Act and subpart B of part 457 implementing that section of the Act.

19. Notice and Timing of HCFA Action on State Plan Material (§ 457.160)

Section 2106(c) sets forth requirements relating to notice and timing of State plan material. In § 457.160(a), we proposed that the HCFA Administrator will send written notification of the approval or disapproval of a State plan or plan amendment. While section 2106(c)(2) only requires that written notification be sent for disapproval and requests for additional information, we proposed to require that written notification be sent for approvals as well.

In § 457.160(b)(2), we proposed that the State plan or plan amendment be considered received on the day the designated official or individual, as designated pursuant to § 457.150(d) and (e), receives an electronic, fax or hard copy of the complete plan or plan amendment. The complete plan includes any referenced documentation, such as attachments, benefits plans or actuarial analyses.

As required by section 2106(c)(2), a State plan or plan amendment will be considered approved unless HCFA, within 90 days after receipt of the State plan or plan amendment, sends the State written notice of disapproval or written notice of any additional information it needs in order to make a final determination. The Act does not specify calendar days or business days. We proposed to measure the 90-day review period using calendar days. The 90-day review period would not expire until 12:00 a.m. eastern time on the 91st countable calendar day after receipt (except that the 90-day period cannot stop or end on a non-business day), as calculated using the rules set forth in the proposed regulation and discussed below.

Section 2106(c) sets forth requirements relating to notice and timing of action on State plan material. In § 457.160(b)(3), we proposed that if HCFA provides written notice requesting additional information, the 90-day review period is stopped on the day HCFA sends the written request for additional information. This written request will be considered sent on the day that the letter is signed and dated except if that day is a weekend or Federal holiday, in which case the review period will stop on the next business day. We proposed that the review period will resume on the next calendar day after the complete additional information is received by the designated individual, unless the State's response is received after 5:00 p.m. eastern time on a day prior to a non-business day or any time on a non-business day, in which case the review period will resume on the following business day. We proposed in § 457.160(b)(4) that the 90-day review period cannot stop or end on a non-business day. HCFA will not stop a review period on a weekend or holiday. If the 90th day of a review period is scheduled to be on a weekend or holiday, then the 90th day will be the following business day. Additionally, in § 457.160(b)(5), we proposed that HCFA may send written notice of its need for additional information (and therefore, stop the 90-day review period) as many times as necessary to obtain the necessary information for making a final decision whether to approve the State plan or plan amendment.

Comment: One commenter supported HCFA's proposal to send written notification of State plan approvals even though the statute requires only written notification of disapprovals.

Response: We note the commenter's support.

Comment: One commenter agreed with HCFA's use of 90 calendar days. One commenter proposed that some allowance should be made for expedited approval of State plan amendments because SCHIP programs are such a high priority for the States and the federal government. This commenter expressed the opinion that allowing for more than 90 days each time federal approval is needed, even for simple changes, is a deterrent to quick, innovative program adjustments. They recommended that HCFA should strive for expeditious responses to State plan amendments and, whenever possible, should take action in fewer than 90 days.

Response: We appreciate the support of the first commenter. As for the expedited approval of State plan amendments, section 2106(c)(2) of the Act provides that a State plan or plan amendment will be considered approved unless HCFA, within 90 days after receipt of the State plan or plan amendment, sends the State written notice of disapproval or written notice of any additional information it needs in order to make a final determination. We make every attempt to expedite responses to State plan amendments and recognize their importance to the States and the Federal government. The 90-day time frame is the outer time limit for action; it does not preclude action in a shorter time period and we will strive to take quicker action whenever possible.

Comment: One commenter proposed that the State plan or amendment beconsidered received by HCFA the day it is delivered to the HCFA office rather than the day it is received by a specified individual. In this commenter's view, the State should not be penalized for delays in HCFA's internal delivery system. In this State's case, two weeks after the amendment was delivered to the HCFA Central Office, the Regional Office reported to the State that the amendment had not been received by the Central Office. The State was able to obtain a signed cartage statement indicating that it had been delivered to the office and thereby protected the submission date.

Response: We disagree with the commenter's suggestion that a State plan or plan amendment be considered received by HCFA on the day is it delivered to HCFA. As set forth in § 457.160(b)(2), a State plan or plan amendment is considered received on the day the designated individual or official receives an electronic, fax or paper copy of the complete material. This is intended to simplify administration of the program. At this point in the program, each State has received correspondence notifying it of the identity of the designated individual. If the designated individual is unavailable during regular business hours, another HCFA employee will act in place of the designated individual to ensure that the review period is counted as if the designated individual was in the office. However, in cases where States send an amendment to an individual or address other than the one designated, HCFA cannot begin the review until the amendment is received by the designated individual.

Comment: One commenter disagreed with this provision that provides that if HCFA requests additional information, the 90 day review period stops but resumes on the next calendar day after HCFA receives all of the requested information. The commenter recommended that HCFA adopt the approach used in Medicaid under 42 CFR 430.16(a)(2) which states that if HCFA requests additional information, the 90 day review period for HCFA action on the plan or plan amendment begins on the day it receives that information. The commenter reasoned that under proposed § 457.150(b), “HCFA approves or disapproves the State plan or plan amendment only in its entirety”. Yet under proposed § 457.160(b)(3), if HCFA has determined that additional information is needed, HCFA will have fewer than 90 days to review that information once it is submitted. Although this commenter indicated that it understands the strong interest in moving quickly to implement SCHIP, the commenter saw no reason to accelerate a review process when the initial State submission was inadequate or incomplete. The commenter felt that using the current Medicaid standard would promote consistency and ensure that HCFA has sufficient time for review.

Response: We are committed to expeditious review of State plans and plan amendments. The process set forth in § 457.160(b)(3), that the 90 day review period resumes on the next calendar day after HCFA receives all requested information, will help ensure an expeditious review. We are not using the review period policies in effect under Medicaid, as the Medicaid statute differs from title XXI in this regard and we believe the speedier and more flexible process described in § 457.160(b)(3) will more effectively implement title XXI objectives. To allow us the maximum review time within the review period, we have set forth rules that the review period be started (or restarted) on the first full day following receipt of the plan (or additional information) and the review period will resume on the following business day if the response is received after 5 p.m. eastern time on a day prior to a non-business day or any time on a non-business day.

Comment: One commenter requested that HCFA make every effort to request all necessary information initially so that multiple stoppages of the 90 day clock are less likely to occur. Another commenter wrote that HCFA should not have unlimited ability to stop the clock.

Response: HCFA's formal request for information may include a description of specific issues that need clarification, an outline of additional information required, or a request for resolution of any inconsistencies of the plan with title XXI provisions. We will continue to make every effort to identify those issues for which we need additional information early in the review process. However, many times a State's response will trigger further questions. By allowing the review period to be stopped as many times as necessary to obtain the information needed to make a decision, States are provided ample opportunity to demonstrate compliance with the requirements of the program.

20. Withdrawal Process (§ 457.170)

In § 457.170, we proposed to allow a State to withdraw its State plan or State plan amendment at any time during the review process by providing written notice to HCFA of the withdrawal. This proposed process is consistent with the process for withdrawal of a proposed Medicaid State plan amendment.

Comment: A number of commenters suggested that a State be allowed to withdraw any portion of a proposed submitted plan (and not just a whole plan or amendment) in order to expedite the approval process when a limited number of its provisions are slowing down the plan review process.

Response: In our review of State plans and plan amendments, we have allowed and will continue to allow a State to withdraw a portion of its proposed State plan or proposed plan amendment. In order to clarify this provision, we have revised § 457.170(a) to require that a State may withdraw its proposed State plan or proposed plan amendment, or any portion of its State plan or plan amendment, at any time during the review process by providing written notice to HCFA of the withdrawal.

Comment: One commenter recommended that the State be required to provide public notice and a meaningful opportunity for public input prior to any withdrawal.

Response: We encourage States to involve the public in all phases of the program, including, to the extent feasible, prior to withdrawal of a proposed State plan amendment.

Comment: One commenter suggested that we clarify that a State may withdraw its approved State plan at any time if the State chooses to discontinue its program.

Response: A State may withdraw a proposed State plan or plan amendment by providing written notice to HCFA of the withdrawal in the form of a State plan amendment. We have added a provision at § 457.170(b) to clarify that a State may request withdrawal of an approved State plan by submitting a State plan amendment to HCFA as required by § 457.60. Because withdrawal of a State plan is a restriction on eligibility, a State plan amendment to request withdrawal of an approved State plan must be submitted in accordance with requirements set forth in § 457.65(b), including those related to the provision of prior public notice. Although HCFA does not have authority to deny such a State plan amendment request, this requirement conforms with the requirements of section 2106(b)(3) relating to State plan amendments that restrict eligibility. We note that withdrawal of a Medicaid expansion program may also require an amendment to the title XIX State plan.

21. Administrative and Judicial Review of Action on State Plan Material (§ 457.190)

Under Section 2107(e)(2)(B) of the Act, a State dissatisfied with the Administrator's action on State planmaterial has a right to administrative review and judicial review. In § 457.190(a), we proposed a procedure for administrative review. Specifically, we proposed to require that any State dissatisfied with the Administrator's action on State plan material under § 457.150 may, within 60 days after receipt of the notice of final determination provided under § 457.160(a), request that the Administrator reconsider whether the State plan or plan amendment conforms with the requirements for approval. Additionally, we proposed that the procedures for hearings and judicial review be the same procedures used in Medicaid which are set forth in regulations at part 430, subpart D. We also proposed that HCFA will not delay the denial of Federal funds, if required by the Administrator's original determination, pending a hearing decision. If the Administrator determines that the original decision was incorrect, HCFA will pay the State a lump sum equal to any funds incorrectly denied.

Comment: One commenter supported the proposed procedure for administrative and judicial review.

Response: We note the support of the commenter.

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

1. Basis, Scope, and Applicability (§ 457.300)

This subpart interprets and implements provisions of section 2102 of the Act which relate to eligibility standards and methodologies and to coordination with other public health insurance programs; section 2105(c)(6)(B), which precludes payment for expenditures for child health assistance provided to children eligible for coverage under other Federal health care programs other than programs operated or financed by the Indian Health Service; and section 2110(b), which defines the term “targeted low-income child.” This subpart sets forth the requirements relating to eligibility standards and to screening, application and enrollment procedures. We proposed that the requirements of this subpart apply to a separate child health program and, with respect to the definition of targeted low-income child only, to a Medicaid expansion program.

As discussed in the response to the first comment below, we have removed from the proposed definition of “optional targeted low income child” for purposes of a Medicaid expansion the cross reference to § 457.310(a) in subpart C and have revised the definition of “optional targeted low-income child”, which is now located at §§ 435.4 and 436.3 of this chapter. Comments regarding optional targeted low-income children for purposes of a Medicaid expansion program are addressed in the preamble to subpart M. Conforming changes have been made to the definition of “targeted low-income child” at § 457.310. This subpart now applies only to a separate child health program.

We received no comments on § 457.300 and, with the exception of the one change noted, are implementing it as proposed. General comments on subpart C are discussed in detail below.

Comment: We received two requests that the Medicaid regulations clarify the definition of “optional targeted low-income child.” The commenters are of the opinion that the cross-reference to the title XXI regulations is confusing. They note that some provisions in title XXI, such as permitting States to limit eligibility by geographic region, do not apply in Medicaid.

Response: We accept the commenters' request to clarify the definition of optional targeted low-income child in the Medicaid regulations, rather than cross-reference § 457.310(a). In proposed § 435.229(a), the cross-reference to § 457.310(a) incorporated provisions of the definition of targeted low-income child that only apply in a separate child health program. We have removed the cross-reference to § 457.310(a) and added a specific Medicaid definition of optional targeted low-income child in § 435.4 (and in § 436.3 for Guam, Puerto Rico, and the Virgin Islands).

Comment: We received a number of comments recognizing that certain policies were statutory and urging HCFA to seek statutory changes. The suggested changes included the following:

Allow a State the option to keep a pregnant teen enrolled in a separate child health program even if she becomes eligible for Medicaid as a pregnant woman.

Allow States to deem an infant eligible for a separate child health program for a full year if the birth is covered by a separate child health program.

Response: We will take these suggestions into consideration in developing future legislative proposals and appreciate the commenters' recognition that these issues are driven by the statute.

Comment: Several commenters were concerned about the interaction of various public programs. Two urged HCFA to reiterate the importance of ensuring the Medicaid eligibility is not tied to eligibility for Temporary Assistance for Needy Families (TANF) under the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA).

Response: Under the welfare reform provisions of PRWORA, the link between Medicaid and cash assistance (previously given as Aid To Families with Dependent Children, or AFDC) was severed. This “delinking” of Medicaid from cash assistance assured Medicaid eligibility for low-income families regardless of whether the family is receiving welfare payments, and offers States new opportunities to provide a broader range of low-income families health care coverage. In an effort to help States better understand their opportunities and responsibilities under the law, DHHS, HCFA, and the Administration on Children and Families (ACF) have issued substantial guidance on how to implement the delinking provisions, including fact sheets, letters to State Medicaid and TANF Directors, updates to the State Medicaid Manual, and the publication of a 28-page, plain-English guide entitled, “Supporting Families in Transition: A Guide to Expanding Health Coverage in the Post-Welfare Reform World.” State Medicaid Director letters dated October 4, 1996, February 5, 1997, April 1, 1997, September 22, 1997, and August 17, 1998 dealt with the implementation of the section 1931 eligibility category; letters dated February 6, 1997 and April 22, 1997 discussed redetermination procedures; and eight additional letters covered immigration, outreach and enrollment, MEQC errors, and the availability of the $500 million delinkage fund. Last fall, at the direction of President Clinton, HCFA conducted comprehensive on-site visits in all States to review State TANF and Medicaid application and enrollment policies and procedures. HCFA is currently finishing the ensuing reports and working with the States to address problems that have been identified. An April 7, 2000 letter to State Medicaid Directors requires States to take steps to identify and reinstate individuals who have been terminated improperly from Medicaid and to ensure that their computer systems are not improperly denying or terminating persons from Medicaid. The letter also provides important guidance regarding redetermination. A series of Questions and Answers concerning this letter can be found under the heading “Welfare Reform and Medicaid” on HCFA's website at:http://www.hcfa.gov/medicaid/medicaid.htm.

Based on the findings of HCFA's reviews and the reviews that States are undertaking to comply with the April 7, 2000 guidance, HCFA is providing further guidance and technical assistance to States in the areas of application and notice simplification, outreach to eligible families, and modification of computer systems, among others. HCFA, in partnership with ACF, the Food and Nutrition Service, the American Public Human Services Association, and the National Governors Association, is also disseminating best practices so that States can assist one another as they move forward to correct problems and improve participation among eligible low-income families.

Comment: We received one comment urging HCFA to include information about presumptive eligibility under a separate child health program in the preamble to the SCHIP financial regulation. Another urged HCFA to encourage States to provide presumptive eligibility for children as this is particularly important to children experiencing a mental health crisis.

Response: States have the authority to implement a presumptive eligibility procedure under its separate child health program. This was implicit under title XXI as originally enacted and now, with the enactment of the Benefits Improvement and Protection Act of 2000(BIPA) (Pub. L. 106-554), the authority to implement presumptive eligibility procedures in separate child health programs is explicit.

Under section 803 of BIPA, States have the option to establish a presumptive eligibility procedure and, consistent with the flexibility now granted States under the Medicaid presumptive eligibility option (see section 708 of BIPA, amending section 1920A(b)(3)(A)(i) of title XIX), States have broad discretion to determine which entities shall determine presumptive eligibility, subject to the approval of the Secretary. For example, States can rely on health care providers, child care providers, WIC, or Head Start centers, or the contractors that may be doing the initial SCHIP/Medicaid eligibility screen.

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 section 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 a optional targeted low-income child).

We have revised the policy stated in the preamble of the proposed rule regarding children who are enrolled through presumptive eligibility, but who are later not found to be eligible under the separate child health program or Medicaid. In the proposed rule, we noted that the costs for coverage of such children during the presumptive period must be claimed as SCHIP administrative expenditures, subject to the enhanced match and the 10 percent cap. BIPA, however, authorizes presumptive eligibility under separate child health programs in accordance with section 1920A of the Act, and the statute now allows 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 section 435.1101 of this part. This preserves State flexibility to design presumptive eligibility procedures and allows States that adopt the presumptive eligibility option in accordance with section 435.1101 to no longer be constrained by the 10 percent cap.

Comment: One commenter thought that greater coordination among HCFA, the Office of Child Support Enforcement (OCSE), State child support agencies, and SCHIP stakeholders would increase the likelihood of children receiving the best available health care. The commenter noted that many children who qualify for SCHIP are members of single-parent families and could benefit from the services of the child support program. Conversely, SCHIP programs can ensure that children have access to quality health care when a noncustodial parent's employer does not offer health insurance, the health insurance is available only at a prohibitive cost, or it is not reasonably accessible to the child. Another commenter suggested that the preamble explicitly note the prohibition on denying Medicaid to children on the grounds that their parents have failed to cooperate with establishing paternity or with medical support enforcement and also highlight that States do not need to include questions about noncustodial parents on their joint applications, but rather can solicit such information at the time that they notify the family of eligibility.

Response: We agree that it is important that children benefit from the services of the child support program. HCFA has issued guidance to States under title XIX about the importance of informing families who receive Medicaid about available State Child Support Enforcement services. We have instructed State Medicaid agencies to coordinate with State CSE agencies to ensure that children who could benefit from these services receive them. We encourage States to inform families who apply for coverage under their separate child health programs about CSE services.

CSE agencies can also serve as a source of information about available health care coverage for families who seek CSE services. In many cases, families are not able to secure health care coverage through a child's absent parent. In such cases, CSE can help the family obtain coverage through SCHIP or Medicaid if the State promotes coordination between its CSE and child health coverage. Several States have reported taking such steps as part of their outreach and coordination activities.

While child support services can provide important support to many families, questions about absent parents on a child health application can be a barrier to enrollment. Under Medicaid, the recent guidance issued to State Medicaid agencies reiterates that cooperation of a parent with the establishment of paternity and pursuit of support cannot be made a condition of a child's eligibility for Medicaid. Moreover, the guidance informs States that they are not required to request information about an absent parent on a Medicaid application (or a joint Medicaid/separate child health programapplication) that is only for a child and not for the parent.

Comment: One commenter felt that the eligibility screens and information requirements in the proposed regulations went beyond the statutory requirements, are excessively burdensome and will make it impossible to effectively coordinate with other programs, such as the school lunch program, Head Start, or WIC.

Response: We disagree with the commenter's assertion that the regulations have created barriers to enrollment in the SCHIP program. We have provided States with considerable flexibility with respect to how to meet the requirements of the statute, and have worked in this final rule to further expand that flexibility in many cases. The statute specifically requires that States screen all applicant children for Medicaid eligibility and enroll them in Medicaid if appropriate. To that end we have encouraged, and the majority of States have adopted, joint applications which significantly decrease the complexity of the application and enrollment process. We have permitted States flexibility with respect to the design of their applications and their application processes, although we encourage States to streamline the enrollment process in SCHIP and Medicaid (for example, elimination of assets tests, using mail-in applications, minimizing verification requirements) to enable families to access coverage under a separate child health program or Medicaid as quickly and easily as possible. We acknowledge the difficulties that exist in coordinating different public programs and have provided flexibility wherever possible; but that flexibility is constrained by the statutory provisions that are designed to ensure that children are enrolled in the appropriate program. States have taken advantage of the flexibility permitted to design varied and effective coordination procedures. We are committed to working closely with the States to help them implement procedures that work effectively for them and to share their ideas and experiences with other States.

2. Definitions and Use of Terms (§ 457.301)

This section includes the definitions and terms used in this subpart. Because of the unique Federal-State relationship that is the basis for this program and in keeping with our commitment to State flexibility, we determined that many terms should be left to the States to define. For purposes of this subpart, we proposed to define the terms “employment with a public agency,” “public agency,” and “State health benefits plan.”

We proposed to define “public agency” to include a State, county, city or other type of municipal agency, including a public school district, transportation district, irrigation district, or any other type of public entity. We proposed to define the term “employment with a public agency” as employment with an entity under a contract with a public agency. The term was intended to include both direct and indirect employment because we did not wish to influence or restrict the organizational flexibility of State and local governmental units. We proposed to define the term “State health benefits plan” as a plan that is offered or organized by the State government on behalf of State employees or other public agency employees within the State.

Comment: Commenters objected to the definition of “employment with a public agency” as being too inclusive. They noted particular concern about the inclusion of “entities contracting with a public agency” in the definition. Commenters felt the inclusion of this group could unfairly deny coverage to children in families who are not State employees.

Response: We are deleting our proposed definition of “employment with a public agency” in § 457.301. In § 457.310(c)(1)(i), we will track the statutory language at section 2110 (b)(2)(B), which excludes from eligibility “a child who is a member of a family that is eligible for health benefits coverage under a State health benefits plan on the basis of a family member's employment with a public agency in the State.” State law will determine whether parents employed by contracting agencies are employed by a public agency and whether their children are eligible for health benefits coverage under a State health benefits plan. If the State determines that a child is eligible for health benefits coverage under a State health benefits plan on the basis of a family member's employment with a public agency in the State, then the child is ineligible for coverage under a separate child health program. In addition, we have revised the definition of “State health benefits plan” 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.

3. State Plan Provisions (§ 457.305)

In accordance with the requirements of section 2102(b)(1)(A) of the Act, we proposed to require that the State plan include a description of the State's eligibility standards.

Comment: Several organizations commented that HCFA should require States that limit the number of children who can enroll in a separate child health program to describe their procedures for deciding which children will be given priority for enrollment and how States will ensure that equal access is provided to children with pre-existing conditions; their processes for discontinuing enrollment if program funds are depleted; how they will comply with the prohibition on enrolling children at higher income levels without covering children at lower income levels; how the waiting lists will be fairly administered. The commenters also suggested that we require these States to maintain sufficient records to document that favoritism or discrimination does not occur in selecting individuals for enrollment. Additionally, commenters suggested that § 457.305 or § 457.350, should specifically require that a Medicaid screen be conducted before a child is placed on a waiting list.

Response: States are required under § 457.305 to include as part of their State plan a description of their standards for determining eligibility. We are clarifying in regulation text that this must include a description of the processes, if any, for instituting enrollment caps, establishing waiting lists, deciding which children will be given priority for enrollment. This clarification of the regulation text conforms with actual HCFA practice. HCFA has requested States that have adopted enrollment caps to describe in their State plans their policies for establishing enrollment caps and waiting lists and for enrolling children from any waiting lists. We also have added a provision at § 457.350(h) requiring that applicants must be screened for Medicaid prior to being placed on a waiting list due to an enrollment cap. Not doing so would place Medicaid-eligible children on a waiting list and undermine a fundamental goal of the statute—to enroll children in health insurance programs for which they are eligible. In this case, arrangements must be made for the joint application to be processed promptly by the Medicaid program.

States must afford every individual the opportunity to apply for child health assistance without delay in accordance with § 457.340, and facilitate Medicaid enrollment, if applicable, in accordance with § 457.350, prior to placing a child on a waiting list for a separate child health program. We have amended the language of § 457.305 (relating to Stateplan requirements) to reflect this requirement.

If, after a State plan is approved by HCFA, the State opts to restrict eligibility by discontinuing enrollment, by establishing an enrollment cap, or by instituting a waiting list, the State must submit a State plan amendment requesting approval for the eligibility changes as required by § 457.60(a). Because we believe these changes in enrollment procedures constitute restrictions of eligibility, the amendment must be submitted in accordance with the requirements at § 457.65(d). With respect to public input, HCFA also requires in § 457.120 that States ensure ongoing public involvement once the State plan has been submitted.

4. Targeted Low-Income Child (§ 457.310)

In accordance with § 2110(b) of the Act, we proposed to define a targeted low-income child as a child who meets the eligibility requirements established in the State plan pursuant to § 457.320 as well as certain other statutory conditions specified in this section. At § 457.310(b), we set forth proposed standards for targeted low-income children that relate to financial need and eligibility for other health coverage, including coverage under a State health benefits plan. In addition, we set forth exclusions from the category of targeted low-income children.

With regard to financial need, we proposed that a child who resides in a State with a Medicaid applicable income level, must have: (1) family income at or below 200 percent of the Federal poverty line; or (2) family income that either exceeds the Medicaid applicable income level (but by not more than 50 percentage points) or does not exceed the Medicaid applicable income level determined as of June 1, 1997. We left States the discretion to define “income” and “family” for purposes of determining financial need.

We note that we have modified § 457.310(b)(1) to clarify the definition of targeted low-income child. We made technical corrections, in accordance with section 2110(b) to indicate that a targeted low-income child may reside in a State that does not have a Medicaid applicable income level and that a targeted low-income child may have a family income at or below 200 percent of the Federal poverty line for a family of the size involved, whether or not the State has a Medicaid applicable income level. In addition, we have revised proposed § 457.310(b)(1)(iii), now § 457.310(b)(1)(iii)(B), for purposes of clarity. A targeted low-income child who resides in a State that has a Medicaid applicable income level, may have income that does not exceed the income level that has been specified under the policies of the State plan under title XIX on June 1, 1997. This provision effectively allows children who became eligible for Medicaid as a result of an expansion of Medicaid that was effective between March 31 and June 1, 1997 to be considered targeted low-income children. It also means that children who were below the Medicaid applicable income level but were not Medicaid eligible due to financial reasons that were not related to income (e.g. due to an assets test) can be covered by SCHIP.

With regard to other coverage, we proposed that a targeted low-income child must not be found eligible for Medicaid (determined either through the Medicaid application process or the screening process discussed later in this preamble); or covered under a group health plan or under health insurance coverage, unless the health insurance coverage has been in operation since before July 1, 1997, and is administered by a State that receives no Federal funds for the program's operation. However, we proposed that we would not consider a child to be covered under a group health plan if the child did not have reasonable access to care under that plan.

With regard to exclusions, we proposed at § 457.310(c)(1) that a targeted low-income child may not be a member of a family eligible for health benefits coverage under a State health benefits plan on the basis of a family member's employment with a public agency so long as more than a nominal contribution to the cost of the health benefit plan is available from the State or public agency with respect to the child. We proposed to set the nominal contribution at $10.

Section 2110(b)(2)(A) of the Act excludes from the definition of targeted low-income child a child who is an inmate of a public institution or who is a patient in an institution for mental diseases (IMD). We proposed to use the Medicaid definition of IMD set forth at § 435.1009, which provides, in relevant part, that an IMD “means a hospital, nursing facility, or other institution of more than 16 beds that is primarily engaged in providing diagnosis, treatment or care of persons with mental diseases, including medical attention, nursing care and related services.”

We proposed to apply the IMD eligibility exclusion any time an eligibility determination is made, including the time of application or any periodic review of eligibility (for example, at the end of an enrollment period). Therefore, a child who is an inpatient in an IMD at the time of application, or during any eligibility determination, would be ineligible for coverage under a separate child health program. If a child who is enrolled in a separate child health program subsequently requires inpatient services in an IMD, the IMD services would be covered to the extent that the separate program includes coverage for such services. However, eligibility would end at the time of redetermination if the child resides in an IMD at that time. We stated that we were reviewing the IMD policy and considering various options. We solicited comments on an appropriate way to address this issue.

We proposed to use the Medicaid definition of “inmate of a public institution” set forth at § 435.1009. Accordingly, we stated in the preamble to the proposed regulation that when determining eligibility for a separate child health program, an individual is an inmate when serving time for a criminal offense or confined involuntarily in State or Federal prisons, jails, detention facilities, or other penal facilities. We also stated in the preamble to the proposed regulation that a facility is a public institution if it is run, or administratively controlled by, a governmental agency.

Under Medicaid, FFP is not available for medical care provided to inmates of public institutions, except when the inmate is a patient in a medical institution. We proposed to allow this same exception for a separate child health program because we believe an inmate residing in a penal institution who is subsequently discharged or temporarily transferred to a medical institution for treatment is no longer an “inmate.” Therefore, an inmate who becomes an inpatient in a medical institution that is not part of the penal system (that is, is admitted as an inpatient in a hospital, nursing facility, juvenile psychiatric facility, or intermediate care facility that is not part of the penal system), would be eligible for a separate child health program (subject to meeting other eligibility requirements), and the State would receive FFP for medical care provided to that child. If the child is taken out of the medical institution and returned to a penal institution, the child again would be excluded from eligibility for the separate child health program.

Comment: Numerous commenters supported the proposed policy that a child would not be considered covered under a group health plan if the child did not have reasonable access to care under that plan and several othersrequested further clarification. A third group of commenters also recommended that States should be allowed to determine when a plan is inaccessible.

Response: The intention of the “reasonable access to care” standard is to provide relief for children who are covered by a health maintenance organization or managed care entity not in close geographic proximity through the employer of a non-custodial parent and cannot get treatment in the locality in which they reside due to service area or other restrictions. HCFA recognizes that it is often difficult for such children to be removed from coverage under their non-custodial parent's health plan, because it is often court-mandated coverage and the custodial parent may not be able to terminate such coverage. We therefore defined these children as lacking “reasonable access to care.” While we recognize that health coverage that is unaffordable due to high premiums or deductibles also presents issues of access, the statute precludes children who are covered under a group health plan or under health insurance coverage (as defined under HIPAA and reflected in our definitions) from receiving coverage under a separate child health program. We note that some States have established eligibility for children whose families have dropped such unaffordable coverage and it is within their discretion to adopt such procedures. However, we believe that to permit children who are currently enrolled in a group health plan or other health insurance coverage, other than children who do not have reasonable geographic access to coverage, to enroll in a separate child health program would contradict the statute. We have revised § 457.310(b)(2)(ii) to clarify that a child would not be considered covered under a group health plan if the child did not have reasonable geographic access to care under that plan.

Comment: Several commenters requested additional guidance on whether children covered under a plan which provides limited benefits only, such as policies covering only school sports injuries, vision, dental, or catastrophic care, or those with high deductibles, have access to insurance. One commenter requested that HCFA allow States to consider a child's access to dental services when making eligibility determinations. Clarification also was requested on whether school health insurance is considered creditable coverage.

Response: Section 2110(b)(1)(C) of the Act excludes from the definition of targeted low-income children a child who is “covered under a group health plan or under health insurance coverage” as those terms are defined in § 102 of the Health Insurance Portability and Accountability Act (HIPAA), which added section 2791 to the Public Health Service Act (PHSA), 42 U.S.C. 300gg-91(c). HIPAA and the implementing regulations (found at 45 CFR 146.145 and 148.220), in turn, exempt certain “excepted benefits” from some of the requirements of HIPAA to which group health plans and group health insurance are otherwise subject. Consistent with this treatment under HIPAA, a group health plan or group health insurance which meets the definition of “excepted benefits” also will not be considered as a group health plan or health insurance coverage for eligibility purposes. Under section 2110(b)(1)(C) of title XXI, a child with coverage under a group health plan or group health insurance coverage that is included under “excepted benefits” coverage may be provided with SCHIP funds, provided the child meets the other eligibility requirements of the separate program.

Policies that are limited to dental or vision benefits are among the “excepted benefits” identified in HIPAA. Therefore, a child with coverage under a limited-scope dental or vision plan would not be precluded from receiving coverage under a separate child health plan. Similarly, school health insurance policies with very restrictive coverage—for example, coverage limited to treating an injury incurred in a school sports event—would not preclude Title XXI eligibility, so long as they meet the definition of “excepted benefits” in HIPAA.

Comment: Two commenters requested that HCFA allow children to receive vision or dental services through a separate child health program when these services are not provided by the child's current health plan.

Response: With respect to coverage of vision and dental services, the statute does not permit States to provide coverage to children under separate child health programs when these children have other health insurance coverage, as defined by HIPAA even when coverage for certain services is limited. States that are concerned about ensuring that children receive such services may wish to consider expanding eligibility under Medicaid, which does not exclude children with other health insurance coverage from eligibility, or providing for such coverage with State-only funds.

Comment: One commenter noted that the exclusion of children of public employees places an additional administrative burden on States because they must verify whether the child has access to the State employee benefit system before a child may enroll in a separate child health program. Commenters also pointed out that under State welfare reform programs, many former welfare recipients are placed in entry-level State positions and State employee coverage is not necessarily affordable for them.

Response: We recognize that premiums and deductibles may present barriers to access to health coverage for children eligible for State health benefit coverage. However, the statute specifically prohibits coverage under a separate child health program of children who are eligible for health benefits coverage under a State health benefits plan. We have provided greater flexibility on this issue in the regulation, but we believe any further flexibility would violate the statutory prohibition. The verification requirements are subject to State discretion and the State may accept the individual's statement about eligibility for health benefits coverage under a State health benefits plan. Therefore, we do not agree that verification requirements necessarily create an undue burden on States. In any event, we do not have the statutory authority to permit eligibility for children of public employees who have access to coverage under a State health benefits plan.

Comment: Many commenters requested that HCFA clarify the proposed nominal contribution of $10 for children of public employees by indicating whether this is an amount per child, per family, per month, or per year. Other commenters offered alternative suggestions for what could be considered “nominal,” including: allow flexibility among states; $15-$20; 5% or 10% of the family's income or a standard related to their ability to pay; 25-50% of the child's premium; 50% of the cost of the child's coverage; or 60% of the cost of family coverage (consistent with the standard set for employer-sponsored insurance). One commenter requested clarification on how a nominal State contribution of $10 could be verified.

Response: We agree that we were unclear in the proposed regulation regarding the definition of nominal contribution and have clarified in the final regulation that the $10 contribution is per family, per month. While we appreciate the numerous suggestions submitted by commenters for alternative definitions of a “nominal” contribution, we did not change the $10 level in the final regulation. In selecting this level, we were attempting to offer States someflexibility in determining what constitutes eligibility for a State health benefits plan, within the limits on eligibility for a separate child health program imposed by the statute. In our opinion, the $10 nominal contribution achieves this balance. We have also added to the regulation text the “maintenance of effort” provision discussed in the preamble to the proposed rule to indicate that if more than a nominal contribution was available on November 8, 1999, the child is considered eligible for a State health benefits plan. The contribution with respect to dependent coverage is calculated by deducting the amount the State or public agency contributes toward coverage for the employee only from the amount the State or public agency contributes toward coverage of the family.

For example, if a State contributes $100 per month to cover State workers themselves, but contributes $150 per month to cover the cost of the State workers themselves and their dependents, then the contribution toward dependent coverage would be $50 and would clearly exceed the $10 nominal contribution amount. A more complicated scenario that has arisen with certain States occurs when States offer flexible spending accounts in which employees are given a defined contribution amount and can choose from an array of health insurance options. Under these flexible spending plans, the State employees usually choose from plans that have a range of costs, some of which cost less than the State contribution, and some of which cost more than the State contribution. In such cases, if the State contributes $100 toward the cost of insuring the State workers themselves, and there are insurance options available that only cost $85 per month, then the extra $15 dollars that the employees keep could be used to cover the cost of dependents and would be considered a contribution toward family coverage that exceeded the $10 minimum contribution amount. If the cheapest health insurance option under such a scenario were $95, then the contribution toward dependents would be $5 and would be below the $10 nominal amount.

We also have clarified the language in § 457.310(c)(1)(i) to state that a targeted low-income child must not be eligible for coverage under a State health benefits plan on the basis of a family member's employment with a public agency even if the family declines to accept such coverage. We have clarified this language to reflect the clear intent of the statute that the child's eligibility for coverage is the determining factor in this case.

Comment: Several commenters requested clarification on the adoption of the Medicaid definition of “inmate of a public institution.” Commenters noted that, to date, the Medicaid policy has been unclear with unresolved issues, and one commenter queried whether the discussion in the preamble of the proposed regulations makes the stated policy official for Medicaid. Two commenters supported the policy that a child is no longer considered an inmate if the child is discharged from a public institution for treatment in a hospital. One commenter also requested that the term “penal” be included in the preamble and the regulation, and that the definition explain that this refers only to children who are incarcerated after sentencing. One organization requested that the term “inmate of a public institution” not be used because it makes it problematic for ensuring that children in the juvenile justice system, who are not always serving time for a criminal offense but may be awaiting trial, receive adequate care. The organization believes that there is no rationale for making ineligible a child who is temporarily confined.

Response: We have not accepted the commenters' suggestion to revise the definition of “inmate of a public institution.” This term is used in both title XIX and title XXI and is included in the Medicaid regulation at § 435.1009. For purposes of consistency it is appropriate that the term be defined for separate child health programs in these regulations as it has been defined in Medicaid.

Further, neither the statute nor the Medicaid definition differentiate between temporary confinement and incarceration after sentencing. However, as explained in the preamble to the NPRM, there is a distinction between the status of children under title XXI and under title XIX. Under title XXI, children who are “inmates of a public institution” are not eligible for a separate child health program. In contrast, under title XIX such children are eligible for Medicaid, but no FFP is provided for services provided while the child is in the institution. States may address the issue of temporary confinements by promptly enrolling or reenrolling children into the separate child health program when the child is discharged, as long as the child meets other eligibility requirements. We emphasize that the regulations in this subpart apply only to separate child health programs under title XXI. They do not establish Medicaid policy with respect to the definition of “inmate of a public institution.”

Comment: We received many comments on the proposed policy related to a patient in an institution for mental diseases (IMD) and the requirement that a determination be made at the time of initial application or any redetermination. One State specifically supported this flexibility. Another pointed out that the proposed policy was inconsistent with the Medicaid policy and did not see why this situation was any different than other changes in living arrangements. Another said that the proposal to deny eligibility conflicts with § 457.402(a)(9) which includes IMD services in the definition of “child health assistance,” and that denial of eligibility is not a reasonable compromise between these two provisions. This commenter recommended that States be allowed to decide which provision best fits their programs. One commented that this provision of the regulation should be withdrawn because HCFA has not finalized its guidance for Medicaid. Several organizations disagreed with the proposed policy based on the potential negative effect on the child. One of these commenters recommended that the child remain eligible for a separate child health program until one year of creditable coverage has been secured for that child. One commented that it is unfair to cover some children and not others and that the policy on IMDs makes it very difficult to set accurate budget estimates and managed care rates. Another suggested that the exclusion apply only at the time of application so that the practitioner would not avoid referring a child for IMD services because the child might lose eligibility during his or her stay. This organization also said that this would allow consistent continued eligibility during an IMD stay for children who have been determined eligible for an SCHIP Medicaid expansion or separate child health program. Several commenters were concerned about continuity of care if the child lost eligibility at redetermination and commented that the policy was in conflict with the policy to allow a spend down when the spend down was met by the family paying for the IMD. Several commenters expressed support for the policy in the proposed regulation. One noted that children are often in an IMD for a short period. One organization commented that separate child health programs should continue to cover IMD services unless the child is determined not to be eligible for the program.

Response: We have carefully considered the range of comments onthis point and have adopted the policy set forth in the proposed rule as the final policy with respect to children who are patients in IMDs. As was described in the proposed rule, the IMD eligibility exclusion applies any time an eligibility determination is made, either at the time of application or during any periodic review of eligibility. We believe that this is the most reasonable interpretation of section 2110(b)(2)(A) of the Act, which excludes eligibility for residents in an IMD, in light of sections 2110(a)(10) and (18), which allow for coverage of inpatient mental health and substance abuse treatment services, including services furnished in a State-operated mental hospital. We also recognize that this policy may be perceived as treating children with similar needs inequitably based on the particular point in time at which their eligibility is being determined. However, we believe that this is the most reasonable way to implement the two statutory requirements cited above.

We recognize the concern raised by some commenters that this policy differs from Medicaid rules on the IMD exclusion, and in response we note that the different treatment is due to differences between title XIX and title XXI; title XXI mandates an eligibility exclusion for residents in an IMD, while title XIX provides for a restriction on payment for services provided to IMD residents. We must also point out that in Medicaid expansion programs, Medicaid rules will continue to apply and IMD residents will be eligible for the Medicaid expansion program, but no Federal matching funds will be available for any services provided to the individual while residing in an IMD, unless the facility meets the requirements of subpart D of 42 CFR 441 to qualify as an inpatient psychiatric facility for individuals under the age of 21.

5. Other Eligibility Standards (§ 457.320)

Section 2102(b)(1)(B) of the Act sets forth the parameters for other eligibility standards a State may use under a separate child health program. With certain exceptions, the State may establish different standards for different groups of children. Such standards may include those related to geographic areas served by the plan, age, income and resources (including any standards relating to spend downs and disposition of resources), residency, disability status (so long as any standard relating to disability does not restrict eligibility), access to other health coverage and duration of eligibility. We set forth these provisions at proposed § 457.320(a).

In addition, under the statute, the State may not use eligibility standards that discriminate on the basis of diagnosis, cover children with higher family income without covering children with a lower family income within any defined group of covered targeted low-income children, or deny eligibility on the basis of a preexisting medical condition. We set forth these provisions at § 457.320(b). We also proposed that States may not condition eligibility on any individual providing a social security number; exclude AI/AN children based on eligibility for, or access to, medical care funded by the Indian Health Service; exclude individuals based on citizenship or nationality, to the extent that the children are U.S. citizens, U.S. nationals or qualified aliens (except that, in establishing eligibility for a separate child health program, we proposed that States must obtain proof of citizenship and verify qualified alien status in accordance with section 432 of PRWORA); or violate any other Federal laws pertaining to eligibility for a separate child health program.

In addition to the revisions made to this section based on the comments discussed below, we clarified the language in § 457.320(b) to prohibit States from establishing eligibility standards or methodologies which would result in any of the prohibitions listed. “Standards” traditionally have referred to the income eligibility level (for example, 133 percent of the Federal poverty level). “Methodologies” includes the deductions, exemptions and exclusions applied to a family's gross income to arrive at the income to be compared against the standard in determining eligibility. This is a technical change necessary to implement the intent of the statute that States not be permitted to cover children in families with a higher income without covering children in families with a lower income.

Comment: One commenter expressed concern that allowing eligibility standards related to geographic area, age, income, resources, and so forth will allow States to limit the scope of coverage to a smaller population, thereby defeating the goal of covering the maximum number of children. They recommend that HCFA ensure that States are maximizing, not minimizing, the number of children covered. Two commenters were specifically concerned that standards related to geography might encourage States to exclude hard-to-serve areas such as rural areas, although they recognized this provision was statutory.

Response: The flexibility afforded to States in establishing eligibility standards was granted by Congress under section 2102(b)(1)(A) of the Act. Although a primary purpose of SCHIP is to extend health insurance coverage to as many uninsured children as possible, States are explicitly allowed by the law to adopt certain eligibility rules. We note that to date, States have generally designed and implemented broad coverage for children and we are hopeful that this will continue to be the case.

Comment: We received a few comments related to terminating benefits when a child reaches age 19. One commenter objected to terminating benefits when a child reached age 19, while another specifically supported doing so. A third commented that it would be clearer to say “not to exceed 19 years of age” than “not to exceed 18 years of age.”

Response: Section 2110(c)(1) of the Act defines a “child” as an individual under 19 years of age. There is no statutory authority for payment to States for child health assistance provided to children who have reached age 19.

Comment: Several commenters expressed support for allowing States to define income and for allowing States flexibility in verifying income and establishing periods of review. One strongly supported allowing States to determine family composition as well as whose income will be counted and under what circumstances, because this approach could provide a basis for teens (without family support) to enroll themselves.

Response: We appreciate the support and agree that allowing States to define “family” and “income” might provide States the flexibility to provide coverage to certain teens who are without family support.

Comment: One commenter requested that HCFA point out the advantage of using the same definition of income for separate child health programs and Medicaid.

Response: We urge States to use the same definition of income and the same methods of determining income for both separate child health programs and Medicaid. As discussed later in this preamble, using the same definitions and methodologies simplifies the screening process and helps ensure that children are enrolled in the correct program. HCFA can help States to identify ways to simplify Medicaid methodologies and to align the rules adopted for Medicaid and a separate child health program.

Comment: One commenter expressed concern that allowing States to use grossor net income as countable when determining whether the countable income is below the eligibility standard will result in State differences and families may be convinced to move to another State for coverage.

Response: Given the flexibility authorized by law, income tests would vary from State to State even if States were required to use the same method of arriving at countable income because the income standards to which the countable income is compared vary widely. Income standards (and often methodologies) for most Federally-assisted, means-tested programs vary from State to State. Research in this area indicates that individuals move to be with family or for employment and generally do not move for the purpose of receiving means-tested benefits. Income standards vary widely in Medicaid and there has been no evidence that this has resulted in families moving from State to State.

Comment: Two commenters specifically supported eliminating pre-existing conditions as a reason for denial and stated that such a policy is important to children with special needs. Two additional commenters stated that if States may not deny eligibility based on preexisting conditions, it may conflict with contracts between a separate child health program and a health plan or with premium assistance programs.

Response: Section 2102(b)(1)(B)(ii) of the Act prohibits the denial of coverage based on preexisting conditions and § 2103(f)(1)(A) prohibits eligibility restrictions based on a child's preexisting condition. We agree that this prohibition is very important in providing health care to low-income children with special needs and have included it at § 457.320(b)(2) of the regulations. States that have contracts with health plans which restrict eligibility based on preexisting conditions will have to renegotiate the contracts or otherwise ensure that the affected children are provided with care that meet the standards of title XXI.

One limited exception to this rule is permitted. Under § 2103(f)(1)(B) of Title XXI, if a State child health plan provides for benefits through payment for, or a contract with, a group health plan or group health insurance, the plan may permit the imposition of those preexisting conditions which are permitted under HIPAA. This permits the imposition of preexisting conditions consistent with the requirements of such plans when the State is providing premium assistance through SCHIP to subsidize child or family coverage under a group health plan or group health insurance pursuant to § 2105(c)(3) of the statute.

Comment: We received one comment specifically supporting State latitude to establish eligibility based on State-established disability criteria. Another commenter recommended that we add a new § 457.320(b)(4) to specifically prohibit the use of eligibility standards that discriminate on the basis of diagnosis in accordance with section 2102(b)(1)(A).

Response: Section 2102(b)(1)(A) of the Act provides that an eligibility standard based on disability may not “restrict eligibility,” although States may provide additional benefits to children with disabilities. This provision was included in the regulation at § 457.320(b)(3). Section 2102(b)(1)(A) of the Act also provides that no eligibility standard may discriminate on the basis of diagnosis. We have revised the regulation at § 457.320(b)(3), as suggested, to specifically prohibit discrimination on the basis of diagnosis. Therefore, a State may establish eligibility standards that are based on or related to the loss of certain functional abilities, whether physical or mental, if those standards result in children with disabilities qualifying for coverage. A State cannot, however, establish eligibility standards based on or related to a specific disease.

Comment: We received a significant number of comments urging HCFA to add specific residency requirements. Many of the commenters were concerned about children of migrant workers and homeless children. One commenter specifically urged HCFA to require States to set forth rules and procedures for resolving residency disputes. One recommended that the regulations explicitly provide that families involved in work of a transient nature be allowed to choose to establish residency in the State where they work or in one particular State. One commenter recommended that States be required to expedite enrollment of migrant children. One recommended that States be prohibited from the following: denying eligibility to a child in an institution on the grounds that a child did not establish residency in the State before entering the institution; denying or terminating eligibility because of temporary absence; or denying eligibility because residence was not maintained permanently or at a fixed address.

Response: Because Congress has specifically allowed States flexibility to establish standards, we do not establish general residency rules for States. However, we share the commenters' concern that certain children may be unable to establish eligibility in any State because of disputes over residency and do not believe that allowing such a result would be consistent with the overall intent of title XXI and the requirement that SCHIP be administered in an effective and efficient manner. We have revised paragraph (a)(7) and added a new paragraph (d) to § 457.320 to specify residency rules in limited circumstances. In the case of migrant workers, when the child of a parent or caretaker who is involved in work of a transient nature, such that the child's physical location changes periodically from one State to another, the parent or caretaker may select either their home State or the State where they are currently working as the State of residence for the child. For example, if a migrant family moves temporarily from Florida to North Carolina and then returns to Florida during the course of a year as a result of the parents' transient employment, the parents can claim either Florida or North Carolina as the child's State of residence.

In other instances, where two or more States cannot resolve which is the State of residence, the State where a non-institutionalized child is physically located shall be deemed the State of residence. In cases of disputed residency involving an institutionalized child, the State of residence is the parent's or caretaker's State of residence at the time of placement. We believe that a child who is placed in an out-of-State institution should remain the responsibility of the State of residence at the time of placement. Similarly, in cases of disputed residency involving a child who is in State custody, the State of residence is the State which has the legal custody of the child. As indicated in the preamble to the proposed rule, under Shapiro v. Thompson (394 US 618), a State cannot impose a durational residency requirement. We have also added this prohibition to § 457.320(d).

We have not imposed further residency rules. However, we strongly recommend that States establish written inter-State agreements related to disputed residency. We note that the rules contained in § 457.320(d)(2) of this regulation apply only if the States involved cannot come to agreement with respect to a child's residency.

Comment: We solicited comments on our proposal that the eligibility standard relating to duration of eligibility not allow States to impose a maximum length durational requirement or any similar requirement. We received three comments in response, and all three recommended that the regulations make it clear that States are prohibited fromimposing time limits or lifetime caps on eligibility.

Response: Under section 2102(b)(1)(A) of the Act, States have considerable flexibility in setting the standards used to determine the eligibility of targeted low-income children, including those related to duration of eligibility. This enables States to establish the period of time for which a child determined eligible for the State's separate child health program can remain covered prior to requiring a redetermination or renewal of eligibility. At the same time, it is important to ensure that States can identify children enrolled in a separate child health program who become ineligible due to a change in circumstances. Therefore, we have retained the provision in proposed § 457.320(a)(10) and moved it to § 457.320(e)(2) to require that States redetermine a child's eligibility at least every 12 months. Note that termination of a child's eligibility at the end of the specified period (e.g. after a redetermination review) would constitute a “denial of eligibility” subject to the requirements of § 457.340(d) of this subpart and subpart K.

We agree that durational limits on eligibility are contrary to the intent of the program. We have added a new subsection § 457.320(e)(1) to include a prohibition against imposing time limits, including lifetime caps, on a child's eligibility for coverage. That is, a State cannot deny eligibility to a child because he or she has previously received benefits. The prohibition against lifetime caps or other time limits on coverage is consistent with Congressional intent to provide meaningful health care for children and will prevent unequal treatment of similarly-situated children simply because one child has been enrolled in the program longer than the other. It will also prevent the possibility of jeopardizing the health of low-income children by terminating or denying health care on the basis of circumstances unrelated to the child's needs. The prohibition against durational limits on eligibility does not prevent a State from limiting enrollment based on budget constraints, or capping overall program enrollment due to lack of funds. This is reflected in §§ 457.305(b) and 457.350(e). In addition, we have added a definition of “enrollment cap” in § 457.10 of subpart A.

Comment: One commenter specifically supported the concept of 12 months of continuous eligibility. Another recommended that the regulations be more specific about the duration of eligibility. This commenter recommended an annual time period because health care should not be interrupted when income fluctuates, which the commenter believes happens frequently with the population being served. One commenter objected to requiring any interim screening process during an established 12-month continuous eligibility period.

Response: We see no basis to prohibit State review of eligibility on a less than annual basis. We do encourage States to establish an annual period of review and to adopt continuous eligibility rules to avoid interruptions in a child's health care because of minor fluctuations in income. Frequent reviews can be a barrier to enrollment and redetermination and can reinforce the “welfare stigma.” In addition, research shows that many children lose coverage at the time of redetermination.

Between the scheduled reviews, regular, periodic screenings are not required. A child always has the right to file for and become eligible for Medicaid if family income changes, and the State is required to take action on the application, even if the child is covered by a separate child health program. If a child enrolled in a separate child health program does not file an application for Medicaid, the State is not required to screen the child for Medicaid eligibility until the next scheduled redetermination, regardless of changes in the child's circumstances (other than reaching age 19).

Comment: We received a significant number of comments on the discussion about pregnant teens included in the preamble, many of which expressed support for our position.

One commenter suggested that Illinois KidCare is a good model under which a pregnant teen is automatically transferred to the Moms and Babies Medicaid Program. Another recommended that HCFA clearly state an expectation that States provide information to teenage enrollees on the possible benefits of seeking Medicaid if they are pregnant, rather than simply urging them to do so. One commenter recommended that States be required to inform pregnant teens about the differences between their Medicaid and separate child health programs. This commenter also asserted that the benefits of keeping a trusted health care provider may override the benefits of broader coverage and lower out-of-pocket expenses and that States, therefore, should inform pregnant teenagers of the possibility that changing from one program to the other may require the teen also to change doctors. Two commenters recommended that it be made clear that States providing information about Medicaid and the opportunity to apply for Medicaid cannot be held responsible for any individual who does not complete the Medicaid application process.

Several commenters objected to the recommendation that pregnant teens switch to Medicaid midyear. They argued that this unnecessarily disrupts continuity of care and has negative effects on pregnant teens. One of these commenters recommended that pregnant adolescents in their second or third trimester and adolescents with high-risk pregnancies be allowed to continue to see their treating provider through pregnancy and the 60-day postpartum period. Another commenter stated that the regulation related to monitoring pregnant teens and moving them to Medicaid in the middle of an eligibility period goes beyond statutory authority.

One commenter contended that all benchmark programs require pregnancy services and commented that establishing procedures for managed care contractors to notify the State of a teen's pregnancy would be cumbersome, expensive and a potential violation of the family's confidentiality.

Finally, one commenter was concerned that the discussion about pregnant teens not appear to foreclose separate child health programs from adopting pregnancy-related benefits for pregnant teens who are not eligible for Medicaid.

Response: We appreciate the comments, and we wish to clarify a number of points. In drawing attention to pregnant teens, it was not our intent to impose additional or unnecessary requirements on States nor to promote procedures that would disrupt the medical care of pregnant teens. Our intent was to ensure that pregnant teens are provided with sufficient, clear information about Medicaid to make an informed choice about staying in the separate child health program or applying for Medicaid. States are not required to monitor teens for pregnancy and cannot be held responsible for teens who choose not to apply for Medicaid. Managed care contractors in separate child health programs are not required to notify the State when a teen becomes pregnant. Finally, States may provide the same pregnancy-related services under separate child health programs that they do under Medicaid. We urge States to do this, but pregnancy-related services are not mandatory under separate child health programs. We also urge States to make every effort to relyon the same plans and providers in their separate child health programs and Medicaid so that children who switch between programs because of changes in circumstances, including pregnancy, need not change providers.

While States are not under an obligation to ensure that teens enrolled in separate child health programs become enrolled in Medicaid if they become pregnant, we remind States that there are advantages to Medicaid for a pregnant teen even when the benefit package is the same. First, cost-sharing is prohibited for pregnancy-related services under Medicaid and premiums are prohibited if the woman's net family income is at or below 150 percent of the Federal poverty level. (Above that level premiums are limited to 10 percent of the amount by which the family income exceeds 150 percent of the Federal poverty level.) In addition, a child born to a woman who is eligible for and receiving Medicaid on the day the infant is born is deemed to have filed an application and been found eligible for Medicaid. That infant remains eligible for one year if residing with the mother, regardless of family circumstances. If the delivery is covered by a separate child health program because the mother does not apply for Medicaid, the infant might not be eligible for Medicaid instead of automatically eligible as would be the case had the delivery been covered by Medicaid.

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.

Response: The statute does not provide for automatic and continuous eligibility for infants under a separate child health program as it does under Medicaid. Moreover, it is also likely that due to higher income standards that most States apply in Medicaid, many infants born to teens enrolled in a separate child health program will be eligible for Medicaid and therefore not eligible for a separate child health program.

However, as discussed elsewhere in this preamble (in response to comments under both §§ 457.300 and 457.360), we have determined that States may use “presumptive eligibility” to enroll children in a separate child health program pending completion of the application process for Medicaid or the separate plan. We recognize the need of infants to have immediate coverage and consider the automatic enrollment of newborns born to mothers covered by a separate child health program at the time of the delivery into the separate program as an example of such presumptive eligibility. Presumptive eligibility is time-limited, however, and States choosing to enroll these newborns must formally determine the infant's eligibility (including screening the infant for Medicaid eligibility) within the time frame set for completing the application process and determining eligibility.

As noted earlier, 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 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 section 435.1101 of this part. Thus, States that adopt the presumptive eligibility option in accordance with section 435.1101 to no longer be constrained by the 10 percent cap.

Alternatively, States can develop an administrative process to identify, prior to birth, an infant as a Medicaid-eligible individual as soon as he or she is born, as we understand some States have done. This would ensure that Medicaid coverage and services are immediately available to a Medicaid-eligible newborn child.

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. Two requested clarification as to whether an SSN can be required on a joint SCHIP/Medicaid application. A few recommended that SSNs be required for applicants as long as there is a Medicaid screen and enroll requirement. One commenter did not advocate asking for an SSN, but commented that the policy for separate child health programs and Medicaid should be consistent because families prefer to give all information at one time and having a distinction between the requirements for the two programs hinders States' efforts to create a seamless program.

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 will impede efforts to identify children with access to State health benefits.

Finally, another commenter suggested that Medicaid medical support cooperation requirements include providing information about noncustodial parents and that this “section may be construed as excusing a Medicaid applicant from having to provide an SSN for all family members, including noncustodial parents absent from the home.”

Response: The requirements and prohibitions related to the use of a social security number are statutory. 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. Section 1137(a)(1) of the Social Security 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 is not one of the programs identified in section 1137 of the Act, and Title XXI does not require applicants to disclose their SSNs, States are prohibited under the Privacy Act from requiring applicants to do so.

Thus, only the SSN of the individual who is applying for Medicaid (including a Medicaid expansion program under title XXI) can and must be required as a condition of eligibility. Children applying for coverage under a separate child health program cannot be required to provide a SSN, and States cannot require other individuals not applying for coverage, including a parent, to provide a SSN as a condition of the child's eligibility for either a Medicaid expansion program or separate child health program.

We recognize that these statutory provisions can be difficult to reconcile in practice. Under the law, a joint Medicaid/SCHIP application must indicate clearly that the SSN is only needed for Medicaid and not for coverage under a separate child health program, but a family often will not know if their child is or is not Medicaid-eligible. A State may request the SSN for all applicant children as long as the State makes it clear that family members are not required to provide the SSN and that the child's eligibility under theseparate child health program will not be affected if the child's SSN is not provided. However, the State must also inform the family that Medicaid eligibility cannot be determined without the SSN and that the child cannot be enrolled in the separate child health program if the child otherwise meets the eligibility standards for Medicaid.

Comment: A significant number of commenters objected to the verification requirements pertaining to citizenship and alien status. Most of these commenters requested that subsection § 457.320(c) be deleted. A number of the commenters pointed out that we proposed to require that States follow INS rules which were not yet mandatory. Additionally, they argued that the requirement in § 457.320(b)(6) that States abide by all applicable Federal laws and regulations would be sufficient. Several commenters objected to the verification requirements for a number of reasons. A significant number of them commented that the procedures are too burdensome. One commenter felt that proof of citizenship might discourage some citizens who do not have birth certificates from applying. Another commented that requiring proof and verification of alien status would delay access to care for alien children who are otherwise eligible.

Response: Section 432 of the PRWORA requires verification of citizenship for applicants of all “Federal public benefits” as defined in section 401 of the PRWORA. However, proposed regulations published by the Department of Justice, which is responsible for enforcing the verification provision, provide that a State may accept self-declaration of citizenship provided that (1) the federal agency administering the program has promulgated a regulation which permits States to accept self-declaration of citizenship and (2) the State implements fair and nondiscriminatory procedures for ensuring the integrity of the program at issue with respect to the citizenship requirement.

Requiring documented proof of citizenship can be a time-consuming and difficult process for many applicants, and therefore could create a significant barrier to enrollment. It also can create a significant administrative burden for the State. Therefore, consistent with the statutory intent to promote access to and enrollment in separate child health programs and HCFA's policy to provide States with flexibility to simplify their application processes and eliminate barriers to enrollment wherever possible, we have modified § 457.320(c). The regulation permits States to accept self-declaration of citizenship, provided that they have implemented effective, fair and nondiscriminatory procedures for ensuring the integrity of their application process with respect to self-declaration of citizenship.

For example, a State could implement a system to randomly check the documentation of some applicants and terminate the eligibility of any applicants found to have provided a false declaration. If the percentage of false declarations was found to be high, the State would need to take appropriate measures to remedy the problem—including, if necessary, requiring documentation to verify the citizenship of every applicant.

Comment: One commenter asked for clarification of the difference between “proof” and “verification.”

Response: We have used “proof” to refer to documents provided by individuals. “Verification” is used to refer to the process of comparing the information in the “proof” to the INS records. An individual may be considered eligible based on “proof” while the information is being verified.

Comment: Several commenters urged that the regulations specifically prohibit requests for information about the citizenship or immigration status of non-applicants, including parents. One commenter indicated that States should be prohibited from verifying the status of any non-applicant when the information is voluntarily provided.

Response: Information about the citizenship or alien status of a non-applicant cannot be required as a condition of eligibility. States may request this information if it reasonably relates to a State eligibility standard and it is made clear that the provision of this information is optional and that refusing to provide the information will not affect the eligibility of applicants. We strongly urge States not to request this information nor to verify it if voluntarily provided, as this has been found to be a strong deterrent to alien parents filing applications on behalf of their citizen children.

Comment: One commenter recommended that HCFA issue, through letter or manual and web site, Medicaid guidance on the categories of immigrants eligible for Medicaid and that these regulations reference that guidance.

Response: Section 3210 of the State Medicaid Manual, which is available through links set for in HCFA's web site at www.hcfa.gov, discusses immigrant eligibility for Medicaid following passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, although it does not reflect changes to immigrant eligibility contained in the Balanced Budget Act of 1997. We also have posted a fact sheet on the section of our web page addressing Medicaid and welfare reform. The fact sheet is entitled, “The Link between Medicaid Coverage and the Immigration Provisions of the Personal Responsibility and Work Opportunity Act of 1996.” Guidance to State Medicaid Directors dated December 8, 1997 discusses changes in immigrant eligibility for Medicaid under the Balanced Budget Act of 1997. Finally, guidance dated January 14, 1998 discusses immigrant eligibility for benefits under title XXI. This guidance (in the form of “Dear State Medicaid Director or Dear State Health Official letters) can be found at www.hcfa.gov.

We will consider issuing more detailed instructions pertaining to the eligibility of immigrants for Medicaid and separate child health programs and posting such guidance on our web site.

6. Application and Enrollment in a Separate Child Health Program (§ 457.340)

We proposed to require that the State afford every individual the opportunity to apply for child health assistance without delay. Section 2101(a) of the Act requires States to provide child health assistance to uninsured, low-income children in an effective and efficient manner. The opportunity to apply without delay is necessary for an effective and efficient program. Because we have determined that proposed § 457.361 “Application for and enrollment in SCHIP,” is closely related to this section, in this final rule we have incorporated the provisions of proposed § 457.361 into this section. We will respond to the comments concerning § 457.340 of the proposed rule here, and to those concerning § 457.361 of the proposed rule below, under § 457.361.

Comment: We received a number of comments on this section. Many commenters were concerned about the complexity of the application process, particularly when States have a separate child health program. Several commenters recommended that HCFA require States to certify that they have conducted a review of their Medicaid and Title XXI application and redetermination procedures and have eliminated any unnecessary procedural barriers that discourage eligible children from enrolling in and retaining coverage. If differences remain, States should be required to identify in their State plan the reasons for the differences and explain how they are consistent with the coordination goals of title XXI.Other commenters added that families should not be forced to understand and navigate two sets of application, enrollment and redetermination procedures.

Several commenters focused on joint applications for Medicaid and separate child health programs. One commenter asked HCFA to highlight that States can use a joint application and a single agency. Another urged HCFA to require a joint application process or, at a minimum, to conduct rigorous oversight of the screen and enroll procedures. A third specifically indicated that HCFA should require States to have a single form for children who are applying for both programs, that it be limited to four pages, that States be required to accept mail-in applications and that States notify families when their application has been received. Yet another stated that the burden should rest with the State that chooses not to have a joint application to establish that its application procedures are effective. This commenter also recommended that HCFA require that the same verification procedures be used for both programs and that families not have to take any additional steps in order for their application to be processed by Medicaid.

One commenter felt that the regulations should define a joint application process rather than referring to joint forms. This commenter believes that applicants should be subject to the same requirements and procedures—including a single application, the same verification requirements, and common entry points—for both programs, and that nothing additional should be required for children to enroll in Medicaid under one of the categories identified in § 457.350(c)(2).

One commenter felt that States also should be required to certify that they have eliminated any unnecessary procedural barriers to children making a transition between regular Medicaid and a Title XXI-funded program when they lose eligibility for one program and become eligible for the other. Another thought it would be useful for HCFA to mention that flexibility regarding the eligibility determination process is not limited to contractors. Provider employees or outstationed workers at provider locations are also capable of making these determinations under a separate child health program.

Two commenters emphasized the importance of States applying any simplifications adopted in the application process for Medicaid or a separate state program to children whose families also are on Food Stamps or TANF. Some States which generally allow families to apply for Medicaid on behalf of their children through a mail-in application reportedly do not accept mail-in applications from families who already happen to be receiving Food Stamps or TANF. In this commenter's view, such policies create inequities and impose unnecessary procedural barriers to Medicaid enrollment and HCFA should encourage States to review whether they have any such policies, and to eliminate them whenever possible.

Other commenters recommended that HCFA place emphasis not only on helping families to apply for coverage, but also on helping them to remain enrolled in coverage. They felt that the simplification strategies listed by HCFA should also include States' adopting the same redetermination period in Medicaid and separate child health programs, and reducing verification requirements for redeterminations as well as for the initial application.

Response: States are required to establish a program that is “effective and efficient” and a process that allows every individual to apply for child health assistance without delay. Mail-in, joint program application forms, common entry points and applicable procedures, single agency oversight and administration, and simplified and consistent program rules and documentation requirements are several ways that States can facilitate families' ability to apply for the appropriate health coverage program as expeditiously as possible. These procedures can also simplify administration for States. While we are not requiring that States use any specific mechanism, States that do not take steps to streamline, align, and coordinate their enrollment process will have a more difficult time ensuring that children can apply for health insurance coverage without delay and that their application is assessed in an effective and efficient manner.

We encourage, but do not require, States to use a joint application for their separate child health program and Medicaid programs and to simplify the application as much as possible. We agree with the comment that States should construct a joint application process, rather than just a joint application. States that have adopted the same or similar rules relating to application interviews, verification and managed care enrollment have an easier time coordinating the enrollment process. We note that most States with separate child health programs report they use a joint child health application and that joint applications do not necessarily need to cover all possible Medicaid eligibility groups.

Section 2102(c) requires coordination of the administration of SCHIP with other public and private health insurance programs, and we also will be monitoring States' coordination of enrollment in their separate child health program and Medicaid programs, including children's transitions from one program to the other. HCFA will pay particular attention to outcomes in States that lack many of the elements of a streamlined and coordinated system. When appropriate, such monitoring will include requests for States to identify the number of children found potentially eligible for Medicaid, the percentage of those children who have been determined eligible for and enrolled in Medicaid, and the percent determined eligible for and enrolled in the separate child health program. These data will help States and HCFA determine whether the State has developed an effective method to coordinate enrollment and ensure that children are enrolled in the appropriate program.

While States have and will continue to have the flexibility to design their own unique application and enrollment systems, States will be held accountable to ensure that children are afforded the opportunity to apply for the appropriate program in a timely and efficient manner. We believe that most States have developed coordinated enrollment procedures and are continuing to improve their systems to promote enrollment of eligible children, and we will continue to work with the States in developing effective systems.

It is also true, as a few commenters pointed out, that eligibility determination for a separate child health program may be performed by a wide range of entities, as determined by the State. For example, State Medicaid agencies, health care plans and providers, and outstationed State or local eligibility workers also may determine eligibility.

Finally, we agree with the last two points made by the commenters. First, we agree that States' simplifying both initial application and redetermination processes is critical. Second, we also agree that States can reduce barriers to accessing health care for all families by applying any simplifications adopted in the application process for Medicaid and the separate child health program to the application process for children whose families also happen to be receiving, or applying for, Food Stamps or TANF benefits, and we encourage States to do so.

Comment: Several commenters requested that States be given flexibility to use the application for a program other than Medicaid or SCHIP.

Response: States may use a joint application with other programs. Proposed § 457.340(b) was confusing and may have implied that States do not retain discretion over whether or not to combine the applications of different programs. Because we do not want to preclude States from including programs other than Medicaid and SCHIP in a joint application and because a regulation is not needed to allow States to adopt a joint application, we have eliminated § 457.340(b). This in no way implies that States are prohibited from using joint applications. In fact, we continue to strongly encourage States to consider how joint applications might promote coverage of eligible children.

For example, the application for Medicaid and/or a separate child health program may be combined with an application for child care assistance or WIC. Joint applications can be an effective outreach and enrollment tool because they can help States reach families that are being served by other programs. States that use a joint application, however, must develop a process that allows every individual to apply for child health assistance without delay. If the application for the separate child health program and/or Medicaid is combined with an application for other services or benefits and sufficient information is provided to make a determination of eligibility for child health coverage, that determination must not be held up because of information (or action) which is needed for the other program. Joint program applications, while an effective tool, must not result in delays that would be contrary to the intent of the statute and this section.

Comment: One organization commented that the regulations should clarify that underlying the provision at proposed § 457.340(a) regarding the opportunity to apply without delay are title VI of the Civil Rights Act and the Americans with Disabilities Act.

Response: Underlying the provision that individuals be able to apply without delay is section 2101(a) of the Act, which requires States to provide child health assistance to uninsured, low-income children in an effective and efficient manner. The opportunity to apply without delay is necessary for an effective and efficient program.

Of course, this opportunity must be available to all children, regardless of their race, sex, ethnicity, national origin or disability status. Thus, the civil rights laws must be adhered to in implementing this requirement, but are not the only statutory authority for this provision.

Comment: One commenter expressed strong support for the requirement that every individual be afforded the right to apply. The commenter asserted that adolescents not living with their parents should be allowed to file their own applications and recommended that HCFA, through the preamble, encourage States to adopt policies that facilitate the filing of applications by adolescents themselves.

Response: As required by this section, States must afford every individual, including adolescents, the opportunity to apply for child health assistance without delay. We encourage States to consider how they might best ensure that adolescents, including those who are not living with their parents or caretakers, can apply for SCHIP. States can also allow adolescents to sign their own applications; but this is a matter of State law and we cannot require States to permit minors to do so.

Comment: One commenter stated that the regulations should address methods for allowing families to report changes in circumstances in an efficient, family-friendly manner, such as not requiring the family to complete a new application when circumstances change.

Response: Section 2101(a) of the Act requires that child health assistance be provided in an effective and efficient manner. A reporting system which requires that a child reapply every time there is a change in family circumstances affecting eligibility would not constitute effective and efficient administration. The precise manner in which an individual reports changes is subject to State discretion, as is the form used for periodic redetermination. States should develop methods of reporting changes that pose as few barriers to uninterrupted eligibility as possible and do not require families to resubmit information that has not changed. States that have opted to provide continuous eligibility generally do not require reporting of any changes in circumstances except at regularly scheduled redeterminations.

7. Eligibility Screening and Facilitating Medicaid Enrollment (§ 457.350)

Sections 2102(b)(3)(A) and (B) of the Act require that a State plan include a description of screening procedures used, at intake and at any redetermination, to ensure that only children who meet the definition of a targeted low-income child receive child health assistance under the plan, and that all children who are eligible for Medicaid are enrolled in that program. In accordance with the statutory provisions, we proposed at § 457.350(a) that a State plan must include a description of these screening procedures.

More specifically, section 2110(b)(1)(C) of the Act provides that children who would be eligible, if they applied, for Medicaid are not eligible for coverage under a separate child health program. Section 2102(b)(3)(B) provides that States have a responsibility to actually enroll children who have applied for a separate child health program in Medicaid if they are Medicaid-eligible.

As stated in previous guidance, referrals to Medicaid do not satisfy this “screen and enroll” requirement. In accordance with the statute, we proposed to require States to use screening procedures that identify any child who is potentially eligible for Medicaid under one of the poverty-level-related groups described in section 1902(l) of the Act. However, since States are not mandated to cover children below the age of 19 who were born before October 1, 1983 under the poverty-level-related Medicaid groups, we also proposed at § 457.350(c) to require, at a minimum, that a State use screening procedures that identify any child who is ineligible for Medicaid under the poverty level related groups solely because of age but is potentially eligible under the highest categorical income standard used under the State's title XIX State plan for children under age 19 born before October 1, 1983. In almost all circumstances, we expected that the highest categorical income standard used for such older children will be the standard used for the optional categorically needy group of children eligible under section 1902(a)(10)(A)(ii)(I) of the Act. These children are sometimes referred to as “Ribicoff children.” (See § 435.222.) Mandatory coverage of the older children in poverty-level related groups is being phased in and by October 1, 2002, all children under age 19 will be included in the poverty-level-related groups in all States.

In the preamble of the proposed rule, we encouraged States to identify any pregnant child who is eligible for Medicaid as a poverty-level pregnant woman described in section 1902(1)(1)(A) of the Act even though she is not eligible for Medicaid as a child. We noted that Medicaid coverage, cost-sharing rules and eligibility rules pertaining to infants may be more advantageous to a pregnant teen than coverage under a separate child health program.

We proposed at § 457.350(d) that to identify children who are potentially eligible for Medicaid, States must either initially apply a gross income test and then use an adjusted income test for applicants whose State-defined income exceeds the initial test, or use only the adjusted income test for all applicants. We set forth the initial gross income test and the adjusted income test at proposed § 457.350(d)(1) and (2) respectively.

As indicated in section 2102(b)(3)(B) of the Act, Congress intended that children eligible for Medicaid be enrolled in the Medicaid program. We proposed at § 457.350(e)(1) that, for a child found potentially eligible for Medicaid, the State must not enroll the child in the separate child health program unless a Medicaid application for that child is completed and subsequently denied.

At § 457.350(e)(2) we proposed that the State must determine or redetermine the eligibility of such a child for the separate child health program if (1) an application for Medicaid has been completed and the child is found ineligible for Medicaid or (2) the child's circumstances change and another screen shows the child is ineligible for Medicaid. Finally, at § 457.350(e)(3), we proposed that if a child is found through a State screening process to be potentially eligible for Medicaid but fails to complete the Medicaid application process for any reason, the child cannot be enrolled in a separate child health program. Enrollment in a separate child health program for such a child can occur only after the Medicaid agency determines that a child who has been screened and found likely to be eligible for Medicaid is not in fact eligible for Medicaid under other eligibility categories.

We also proposed to require at § 457.350(f) (§ 457.350(g) in this final regulation) that States choosing not to screen for Medicaid eligibility under all possible groups provide certain written information to all families of children who, through the screening process, appear unlikely to be found eligible for Medicaid. We proposed that the following information must be provided to the person applying for the child: (1) a statement that, based on a limited review, the child does not appear to be eligible for Medicaid but that a final determination of Medicaid eligibility can only be made based on a review of a full Medicaid application; (2) information about Medicaid benefits (if such information has not already been provided); and (3) information about how and where to apply for Medicaid.

We have incorporated the provisions of proposed § 457.360, “Facilitating Medicaid enrollment,” into § 457.350 because the requirements of both sections relate to the steps which the State or contractor responsible for determining eligibility under a separate child health program must take to comply with the “screen and enroll” requirements of Title XXI. In § 457.350(a), we therefore have added a requirement that the State plan include a description of the procedures the State will use to ensure that enrollment in Medicaid is facilitated for children screened potentially eligible for Medicaid and who are then determined by the State Medicaid agency to be eligible for Medicaid.

We will respond to the comments on the proposed § 457.360 in our discussion of § 457.360 rather than in our discussion of this section. Also, note that the obligations of the Medicaid agency in meeting the screen and enroll requirements are set forth in a new § 431.636, which is discussed further in subpart M of this preamble, “Expanded coverage of children under Medicaid and Medicaid coordination.”

We noted in the preamble that there is great concern among a number of States and others that children will go without health care because of these screen and enroll policies. The concern centers around the perceived stigma of Medicaid. Some families may refuse to apply for Medicaid because they associate it with “welfare.” Some families may not complete the Medicaid application process because it may be more complicated than the application process for a separate child health program, may require more documentation, or may otherwise be seen as more invasive into personal lives. We solicited comments on the extent of these problems and possible solutions. We received many comments concerning the screen and enroll requirements. These comments are addressed below.

Comment: One commenter indicated that the term “found eligible” should be used consistently. The regulations should not say that a child is “found eligible” for Medicaid through the screening process and then indicate that when the Medicaid application is processed the child is not “found eligible” for Medicaid.

Response: We agree with the comment. A child who has been found through the screening process to be potentially eligible for Medicaid has not been determined eligible for Medicaid. We have revised the regulations to use the terms consistently. As revised, the term “found eligible” is only used when a final action has been taken on a Medicaid application and the child has been enrolled in Medicaid. The term “potentially eligible” is used when a screening indicates that a child appears to be eligible for Medicaid and therefore may not be enrolled in a separate child health program until action is taken on his or her Medicaid application.

Comment: One commenter suggested that the regulations require that States provide comprehensive training to eligibility determination workers (and other workers as appropriate) in both Medicaid and a separate child health program to ensure that all potentially eligible applicants are afforded the right to apply and that no eligible children are terminated inadvertently or inappropriately.

Response: One aspect of minimizing barriers and assuring appropriate action with respect to applications is providing adequate training to eligibility workers. States will need to ensure that such training has been, and continues to be, provided, as appropriate.

Comment: A significant number of commenters supported the policy that a child could be “found ineligible” for Medicaid through either a regular Medicaid application or through a screening rather than requiring that an actual Medicaid application be filed and a formal determination be made that the child is Medicaid-ineligible.

Response: The clear intent of title XXI is to provide benefits only to children who do not meet Medicaid eligibility requirements in effect before title XXI was enacted. This policy ensures that SCHIP funds will be used to cover only newly eligible children and not supplant funds already available through Medicaid to cover eligible children at the applicable Medicaid FMAP. This policy also ensures that children who are eligible for Medicaid benefits and cost-sharing protections receive the benefits and protections to which they are entitled. At the same time, Congress intended for children to be able to apply for, and obtain, health care insurance as quickly as possible, without lengthy delay. Requiring a formal denial by the State Medicaid agency in all cases would not promote the intent of the law. Permitting children who are found unlikely to be eligible for Medicaid through a screening process to proceed with their application under a separate child health program without a formal Medicaid determination be made, best balances these two goals.

Comment: Some commenters were concerned that States would make the Medicaid application process difficult and unfriendly while making theapplication for a separate child health program simple so that families would choose to apply for the separate program but not Medicaid, and that the State would get the enhanced Federal match. One commenter particularly supported the policy that refusal to apply for Medicaid affects eligibility for a separate child health program. A number of other commenters objected to the policy of denying eligibility for a separate program when a child is found potentially eligible for Medicaid but the family makes an informed choice not to apply for Medicaid or chooses not to complete the Medicaid application process. One commenter argued that this policy goes beyond statutory authority. Most of those objecting to the policy expressed concern that it would result in children going without health coverage at all.

Response: How well the screening process works depends in large part on State Medicaid application rules and procedures. States have broad discretion under federal law to simplify and streamline their enrollment processes. We encourage States to simplify the Medicaid application process and to make the division between separate child health programs and Medicaid appear seamless, and many States have done so.

While we recognize that some families may decide to go without insurance rather than apply for Medicaid, we believe that it would be contrary to the statutory purposes to permit States to enroll children in a separate child health program who have been found potentially eligible for Medicaid through a screening process. As many States have demonstrated, States have the flexibility to address most, if not all, of the reasons why families might prefer not to apply for Medicaid. If families are reluctant to apply for Medicaid, the State may need to reexamine the Medicaid application and redetermination process, as well as its outreach and marketing strategies, to assess how barriers to participation can be eliminated. For example, States have shown that families are more likely to complete the Medicaid application process if face-to-face interviews are eliminated, resource tests for children are dropped and documentation requirements are reduced. If a joint application process and a single program name are used, the procedures can be made seamless and the difference between separate child health programs and Medicaid made almost invisible to the family. States are continuing to experiment with different ways to promote seamless enrollment and coverage systems.

HCFA will be focusing considerable attention over the coming months on ways to help States develop seamless, family-friendly application and eligibility determination systems and to promote best practices across States. These practices will not only help States meet the screen and enroll requirements, but also will help States identify and enroll the millions of uninsured children who are eligible for, but not enrolled in, Medicaid.

Comment: Many of those commenting on the screening requirements were concerned that not all children who are eligible for Medicaid will be identified. A number of commenters disagreed with the policy that the screening process only needs to screen for eligibility under the children's poverty level groups described in 1902(l). Quite a few were concerned that children with special needs who might qualify for Medicaid under another eligibility group will end up enrolled in a separate child health program that may provide less coverage than Medicaid. Some urged HCFA to require that States ask whether a child is disabled or has special needs. Others disagreed with the statement in the preamble that requiring States to screen for eligibility under all possible groups would place an unreasonable administrative burden on States. These commenters pointed out that States have considerable flexibility to simplify eligibility under Medicaid, particularly under section 1931.

One commenter noted that screening and determining eligibility are not the same. This commenter suggested that it is quite feasible to devise a simple, short list of questions to screen for eligibility in non-poverty related groups, and that the regulations should require that States screen considering the most liberal income eligibility standard for the child given the child's age, disability and the family's prior eligibility for § 1931. One commenter suggested that States be required to screen for eligibility for children under sections 1931 and 4913 of the Balanced Budget Act of 1997. Four others suggested that the regulations should require States to screen considering the highest effective income threshold, taking income disregards into account.

One commenter expressed concern about the extent to which income exclusions and disregards must be applied in the screening process. This commenter suggested that the screening should include only the standard deductions applicable to all poverty-level Medicaid eligibility groups. Another commenter stated that requiring independent entities to be knowledgeable about income exclusions under other Federal statutes, particularly those which are not likely to be encountered, is contrary to simplification.

Finally, one commenter was concerned that a pregnant teen who could be eligible for Medicaid as a pregnant woman might be found ineligible for both a separate child health program and Medicaid if the screening process did not include a method of identifying pregnant teens.

Response: We have tried to balance the statutory screen and enroll requirements with the requirement that child health benefits be provided in an “effective and efficient manner,” taking into consideration the fact that screening may be done by entities that may not be familiar with the intricacies of Medicaid eligibility. For this reason, we have not required a full Medicaid application or a formal decision on such an application before a child can be eligible for a separate child health program.

We have, however, reevaluated our position on screening for eligibility under section 1931 of the Act in light of the fact that in some States the highest eligibility threshold for non-disabled children is applied through the § 1931 eligibility group. We also recognize that some States expanded Medicaid eligibility through the authority of section 1115 of the Act, resulting in a higher eligibility threshold for some children. We have revised § 457.350(b) (proposed § 457.350(c)) to require that a State that has used the flexibility provided under § 1931 to expand eligibility must screen for eligibility under one of the poverty level groups described in section 1902(l), section 1931 of the Act, or a Medicaid demonstration project under section 1115 of the Act, whichever standard generally results in a higher income eligibility level.

States that have expanded eligibility under section 1931 beyond the poverty level category generally have adopted similar income eligibility rules; at a minimum, the section 1931 income methodologies are not likely to be significantly more complicated than the poverty level rules. Further, States need not screen families under both section 1931 and section 1902(l). Rather, they must screen under whichever methodology generally results in a higher income eligibility level for the age group of the child applying for assistance.

Because we are requiring States to screen under whichever methodology generally results in a higher income eligibility level, States do not have to apply every income and resource disregard used under its State plan.Disregards that apply only in very limited circumstances need not be routinely used in the screening process. For example, many families applying for coverage under section 1931 would be expected to have earned income, so earned-income disregards must be applied in the screening process. However, few applicant families would be expected to have income-producing property. Thus, a State that disregards such income under section 1931 would not have to apply this disregard in the screening process.

We had included proposed § 457.350(c)(2) in the proposed rule to ensure that the children eligible for Medicaid under section 1902(a)(10)(A)(ii)(I) (the “Ribicoff children”) would not be missed in the screening process. However, most of these children will be identified under the revised § 457.350(b). Therefore, cognizant of the need to keep the screening process as simple as possible, we have removed proposed § 457.350(c)(2) from the final regulation.

We share the commenters' concern about children with disabilities being left out of the screening process and strongly encourage States to screen for children who might be eligible for Medicaid on the basis of disability. Questions about a child's potential disability may be included on the separate child health or joint SCHIP/Medicaid application for follow-up. We require States to ensure that parents are provided with information about all Medicaid eligibility categories and coverage, are encouraged to apply for Medicaid under other eligibility categories and are offered assistance in applying for Medicaid. However, we do not agree with the comment that a child should be denied coverage under a separate child health program unless a full Medicaid disability determination has been made. The definition of disability for Medicaid purposes is not easily understood by people unfamiliar with Medicaid eligibility rules, and screening for eligibility based on disability could be very time-consuming. We note that States have 90 days, rather than 45, to determine Medicaid eligibility when disability is involved. Moreover, particularly in light of recent State Medicaid expansions, most children who would be eligible for Medicaid on the basis of disability will also meet the eligibility requirements as a poverty level child.

We also do not specifically require States to screen for eligibility under section 4913 of the BBA. The State is responsible for ensuring that disabled children who lost SSI because of the change in the definition of childhood disability (“section 4913 children”) are aware of their right to Medicaid benefits. States must identify and provide coverage for section 4913 children, but it is highly unlikely that a child who would be eligible as a section 4913 child would not be identified in the screening process as potentially Medicaid eligible on the basis of his/her income alone. In any event, Medicaid confidentiality rules do not allow States to provide lists of section 4913 children to entities that determine eligibility for a separate child health program but that do not also determine Medicaid eligibility.

Comment: One commenter pointed out that a screening based on income alone would be insufficient in a State that continues to apply a resource test to children under Medicaid. They recommended that § 457.350 be revised to clarify that, in such situations, States must evaluate whether children meet both income and resource tests for Medicaid eligibility.

Response: We agree that, in States that continue to apply a resource test to children under Medicaid, when an income screen indicates that a child is potentially income eligible for Medicaid, the State must also screen for Medicaid eligibility under the applicable Medicaid resource test. A resource screen limits those cases in which a child is found potentially eligible for Medicaid based on an income test, but is then reviewed under Medicaid rules and found ineligible based on resources (and is then sent back to the separate child health program for another eligibility review). We have added a new paragraph (d) to § 457.350 to include this requirement. If a State continues to apply a resource test for children under the eligibility groups described in § 457.350(b) (§ 457.350(c) in the proposed rule) and a child has been determined potentially income eligible for Medicaid, the State must also screen for Medicaid eligibility by comparing the family's countable resources to the appropriate Medicaid resource standard. In conducting the screening, the State must apply Medicaid policies related to resource requirements, including policies related to resource exclusions and disregards and policies related to resources for particular Medicaid eligibility groups. However, in an effort to balance the statutory mandate that children eligible for Medicaid not be enrolled in a separate child health program with the need to keep the screening process as simple as possible, States need not take into account disregards that apply only in very limited circumstances in the screening process. Any resource exclusions and disregards which the State does not plan to use in the screening process must be identified in the State plan.

Since most States no longer apply a resource test to children, this added screening requirement will not affect most States. State experience indicates that children who are income eligible seldom have resources in excess of the resource standard previously used, with the possible exception of a car that is usually needed for transportation to and from work. States have found that requiring information about resources that are highly unlikely to make a child ineligible, or that rarely provide a family with a greater ability to purchase health coverage, is an unnecessary administrative burden, a barrier to eligibility, and helps to reinforce the “welfare stigma.” HCFA encourages the few States with resource requirements for children to eliminate or otherwise simplify any remaining resource tests under both Medicaid and separate child health programs. However, any State that retains a resource test for Medicaid must screen all applicants who appear income-eligible for Medicaid for eligibility under the applicable resource test.

Comment: One commenter indicated that screening is particularly difficult when an employer-sponsored model is used for SCHIP. This commenter suggested that States be given the option to accept a lower Federal match, for example, the Medicaid match, in lieu of meeting the Medicaid screen and enroll requirements.

Response: We do not have the statutory authority to provide a lower match in lieu of meeting the Medicaid screen and enroll requirements. Furthermore, because eligibility determinations are distinct from determinations about the kind of coverage an eligible child will receive, there does not seem to be any reason why the screen and enroll requirements would present any particular problems for States with premium assistance programs. States are required to screen all children applying for coverage under a separate child health program.

Comment: We received a significant number of comments concerning the requirement that certain information about Medicaid be provided to families if a State uses a screening procedure other than a full determination of Medicaid eligibility. Many commented that this requirement is administratively burdensome, a waste of administrative resources, exceeds statutory authority, and is contrary to the purpose and goal of the separate child health program option provided by Congress. Somecommenters believed that this requirement would mean that a full Medicaid determination needs to be made in every case. Others were concerned that it would be confusing to families whose children were found eligible for a separate child health program, would slow down the eligibility determination process, and would create a barrier to access in situations where the family did not want Medicaid. Several commenters stated that there is no evidence that Medicaid-eligible children are being missed in the screening process and that to the contrary, State-based evidence suggests that many more such children are being found than anticipated.

Other commenters did not think that the notice requirements went far enough and they urged HCFA to require that the information provided describe disability-based, medically-needy and § 1925 transitional Medicaid eligibility. One commenter recommended that proposed § 457.350(f)(1) be revised to read “based on limited review, we could not tell if your child is eligible for Medicaid.” Another recommended adding “and orally in a manner that is literacy and language appropriate” to the lead-in to the required list of notifications. One commenter recommended that the final rule include an example of notice language to be sent to children who are determined unlikely to be Medicaid-eligible as a result of a limited screening process. Several others questioned whether the cost of providing the information about Medicaid would be an SCHIP administrative cost subject to the 10 percent cap on administrative expenses.

Response: Providing information about Medicaid will not necessarily create a barrier to enrollment. Families are entitled to have complete information on which to base a decision about applying for coverage. We are pleased that reports from many States indicate that many Medicaid-eligible children are being found through the screening process. However, the results across all States are not uniform and there is no way to know how many other Medicaid-eligible children are not being identified. Because all families are entitled to have information on their child's eligibility for coverage, we are retaining this provision with clarification.

We agree that families need to understand that no formal determination of the child's Medicaid eligibility has been made, nor has the child been screened under all Medicaid eligibility categories. We note that a Medicaid determination does not need to be made in every case, but rather only for those children screened as potentially eligible for Medicaid using the joint application, and that a Medicaid eligibility determination can only be issued by the State agency designated to make the determination. In the instance where the same agency that makes the Medicaid determination of eligibility also determines eligibility for the separate child health program, a determination of Medicaid eligibility must be issued, in addition to the notice required at § 457.350(e).

We have clarified the language of proposed § 457.350(f) at § 457.350(g)(1) of this final rule to provide that the State must inform the family, in writing, that based on a limited review, the child does not appear to be eligible for Medicaid, but that Medicaid eligibility can only be determined from a full review of a Medicaid application under all Medicaid eligibility groups. We have not included actual or proposed notice language in the final rule. Due to the differences in Medicaid programs, the language necessarily will vary from State to State. However, we are working to identify good notice language and best practices and will disseminate this material to States.

We expect that the information will be comprehensive and include information about Medicaid eligibility based on disability, pregnancy, excessive medical expenses, or unemployment of the family wage earner. We also expect that this information will be provided in a simple and straightforward manner that can be understood by the average applicant and that meets all applicable civil rights requirements, including the Americans with Disabilities Act (ADA). The information can be provided along with other information conveyed to SCHIP applicants or it can be a separate notice. The cost of providing information about Medicaid eligibility need not be a SCHIP administrative expense subject to the 10 percent cap. A State may choose to charge the cost of providing information about Medicaid as an administrative expense under title XIX.

Comment: A few commenters indicated that the regulations should make it clear 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.

Response: As discussed above, at its option, a State may 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. However, the 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.

As noted above, we have revised our policy based on the recent enactment of BIPA to permit 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 § 435.1101 of this part. This preserves State flexibility to design presumptive eligibility procedures and allows States that adopt the presumptive eligibility option in accordance with § 435.1101 to no longer be constrained by the 10 percent cap.

Comment: We received several comments urging HCFA to emphasize opportunities for simplifying the screen and enroll process and making the process “family-friendly.” Among the suggestions were: using a joint application or a single State agency; avoiding confusing options for families to opt in or out of Medicaid; eliminating age-based rules; adopting the same verification requirements as Medicaid; adopting the same income and resource methodologies as Medicaid; eliminating documentation requirements in Medicaid that are not required by the separate child health program; and requiring that any simplifications in the application process that States adopt for Medicaid or a separate child health program not be denied to children whose families also happen to be TANF or Food Stamp applicants or recipients.

Response: The suggested simplifications are ways in which confusing options and complex procedures can be eliminated and the screen and enroll process be made “family-friendly.” We encourage States to adopt these simplifications. As States experiment with new ways to coordinate their child health coverage programs, they are finding that alignment of program rules and procedures can greatly simplify the task of coordinating enrollment. As for children who are also applying for, or are receiving, Food Stamps or TANF, we emphasize that, while States may use joint child health, Medicaid, Food Stamp and TANF applications, they cannot condition Medicaid eligibility on Food Stamp or TANF requirements thatdo not apply to Medicaid. For example, if a State Medicaid program does not require a face-to-face interview to determine a child's eligibility for Medicaid, a child applying for Medicaid and Food Stamps on a joint application cannot be denied Medicaid simply because the child's family does not comply with the Food Stamp interview requirement. Similarly, States cannot condition eligibility for a separate child health program on Food Stamp or TANF requirements that do not apply to that program.

Comment: Many of those who commented on the screen and enroll process 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. One commenter was particularly concerned about children leaving State custody from foster care or the juvenile justice system, who are at great risk of failing to apply for health coverage after they leave State custody. A significant number suggested that the regulations 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.

Other commenters found the distinction between joint and separate applications confusing with respect to the screening requirements. The commenters requested clarification as to whether the procedures for use of joint applications also apply to separate child health programs.

Response: There are many policies and procedures that States with separate child health programs can adopt to ensure that children do not “fall through the cracks.” When a child is identified through screening as potentially eligible for Medicaid, States may suspend, deny or provisionally deny the separate child health application. Alternatively, if the State has established a presumptive eligibility process for a separate child health program, the State may enroll an applicant in the separate child health program pending the formal determination of Medicaid eligibility; we have added a new section § 457.355 to reflect this option. It should also be noted that we have revised our policy to allow 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 section 435.1101 of this part. This preserves State flexibility to design presumptive eligibility procedures and allows States that adopt the presumptive eligibility option in accordance with section 435.1101 to no longer be constrained by the 10 percent cap.

We also have clarified the regulations at § 457.350(f)(5) (§ 457.350(e)(2) in the proposed regulations) to require that, if a child screened potentially eligible for Medicaid is ultimately determined not to be eligible for Medicaid, once the State agency or contractor that determines eligibility for the separate child health program has knowledge of the Medicaid determination, 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 believe that most States currently follow this procedure to ensure that the screening process does not improperly deny coverage under the separate child health program.

As discussed below, we have also added a rule directed to the Medicaid agency that requires that agency to promptly inform the SCHIP agency or contractor when a child who has been screened as potentially eligible for Medicaid is found ineligible for Medicaid (see section 431.636 of this chapter).

We have clarified § 457.350(f)(1) (§ 457.350(e)(1) in the proposed rules) to indicate that a State may suspend, provisionally deny or deny the application of a child screened potentially eligible for Medicaid. (Note that to provisionally deny an application is the same as finding the child provisionally ineligible for the separate child health program.) Putting the application into suspense for a reasonable period of time before taking action on it would preserve the child's initial application date and ensure follow-up on the part of the State agency or contractor after the specified time period had elapsed or the agency or contractor learned that the child has been determined ineligible for Medicaid, whichever is sooner. If a State provisionally denies the application and the child is subsequently determined ineligible for Medicaid, the child's initial application would be reactivated as soon as the State agency or contractor that determines eligibility for the separate child health program learns of the denial of Medicaid eligibility. In either case, the family would not need to provide any additional information (unless there has been a change in circumstances that could affect eligibility).

In most circumstances, no further action on the part of the family will be necessary to reactivate or reopen the application for the separate child health program following a denial of Medicaid eligibility. For example, in States in which the State Medicaid agency also determines eligibility for the separate child health program, no further action on the part of the family will be required. Similarly, States that use a joint application and that closely coordinate the eligibility determination process (for example, through electronic transfers or by co-locating eligibility workers) can ensure that Medicaid determinations for children identified as potentially Medicaid-eligible can be made quickly and that the decision (and underlying information) can also be conveyed quickly back to the workers responsible for determining eligibility for the separate program.

We agree that the screening requirements are the same whether a joint application or separate applications are used, although the procedures States will need to adopt to meet these requirements will vary depending on whether a joint application is used. Therefore, we have deleted proposed § 457.350(b) to eliminate confusion. All States, including those that use a joint application, are required to meet the screening requirements in § 457.350.

We have added a new subparagraph § 457.350(f) to clarify the State's responsibilities for ensuring that the Medicaid application process for a child screened potentially eligible for Medicaid is initiated and, if eligible, that the child is enrolled in Medicaid, as required by section 2102(b)(3)(B) of the Act.

In general, in States that use a joint application, the State agency or contractor that conducts the screening shall promptly transmit the application and all relevant documentation to the appropriate Medicaid office or Medicaid staff to make the Medicaid eligibility determination, in accordance with the requirements of § 431.636, a new provision which sets forth the Medicaid agency's responsibilities with respect to the screen and enroll requirements of title XXI. Because the agency administering the separate child health program may not be the agencyauthorized to make Medicaid determinations in the State, it is at the point when the joint application form is transmitted to the Medicaid office from the separate program that it becomes a Medicaid application. We have added the definition of “joint application” at § 457.301 to clarify this point and to facilitate the processing of joint applications. Specifically, we define a joint application as a form used to apply for a separate child health program that, when transmitted to the Medicaid agency following a screening that shows the child is potentially eligible for Medicaid, may also be used to apply for Medicaid. We encourage States that use a separate application for a separate child health program to design their applications so that families can easily waive confidentiality under SCHIP to allow the agency or contractor that conducts the screening to transfer information to the Medicaid agency when a child has been found potentially eligible for Medicaid.

In States which do not use a joint application for Medicaid and separate child health programs, the State agency or contractor that conducts the screening shall (1) inform the applicant that the child is potentially eligible for Medicaid; (2) provide the applicant with a Medicaid application and offer assistance in completing the application, including providing information about what, if any further information and/or documentation is needed to complete the Medicaid application process; and (3)promptly transmit the application and all other relevant information, including the results of the screening process, to the Medicaid agency for a final determination of Medicaid eligibility, in accordance with § 431.636.

It should be noted that under most circumstances, the term “promptly” means that the entire process (including screening and facilitation between SCHIP and Medicaid) for determining eligibility should be completed within the 45 day period. However, we recognize that there are cases where the timing of the process is beyond the control of the separate child health program. For example, if the process for determining Medicaid eligibility after a screen reveals that the family's income has changed, making them eligible for the separate child health program, we understand that the need to transfer paperwork back and forth between programs can take additional time beyond the 45 days.

Alternatively, under § 457.350(f), the State can establish other procedures to eliminate duplicative requests for information and documentation and ensure that the applications and all relevant documents of children screened potentially eligible for Medicaid are transmitted to the Medicaid agency or staff and that, if eligible, such children are enrolled in Medicaid in a timely manner.

We also have added a section § 457.353(a) to require that States monitor and establish a mechanism to evaluate (1) the process established in accordance with § 457.350 to ensure that children who are screened potentially eligible for Medicaid apply for and, if eligible, enroll in that program and (2) the process established to ensure that the applications for a separate program of children who are screened potentially eligible, but ultimately determined by the Medicaid agency not to be eligible, for Medicaid are processed in accordance with § 457.340 of this subpart.

Data collection will need to be a part of any mechanism developed to effectively evaluate the screen and enroll process. For example, States will need to collect data on the number and percent of children applying for a separate child health program who are screened potentially eligible for Medicaid; the number of those screened potentially eligible for Medicaid who ultimately are determined to be eligible versus the number determined not to be eligible for Medicaid; the number of those children ultimately determined not to be eligible for Medicaid whose applications for the separate child health program are processed; etc. These data will help States and HCFA evaluate whether the procedures States adopt are accomplishing the goal of enrolling children in the appropriate program or whether modifications are needed.

We have modified the language in § 457.350(f)(5)(ii) to clarify that States must determine or redetermine the eligibility of a child initially screened eligible for Medicaid if the child's circumstances change and under § 457.350(e) another screening shows that the child does not appear to be eligible for Medicaid. We have added the phrase “does not appear to be” to reflect the fact that only the State Medicaid agency is authorized to actually determine that a child is ineligible for Medicaid. Contractors can only make a determination as to the likelihood of the child's eligibility for purposes of proceeding with the application for a separate child health program.

Second, we have added a new subparagraph at § 457.350(f)(5)(iii) to clarify that, in determining or redetermining the eligibility for a separate child health program of a child screened potentially eligible, but ultimately determined not eligible, for Medicaid, the child may not be required to complete a new application, although it may supplement the information on the initial application to account for any changes in the child's circumstances or other factors that may affect eligibility.

We also have added a new subsection § 457.350(h) to require that States which have instituted a waiting list for the separate child health program develop procedures to ensure that the screen and enroll procedures set forth in § 457.350 have been complied with before a child is placed on the waiting list. This ensures that children who are eligible for Medicaid are not placed on a waiting list if a State has closed enrollment for its separate child health program. These requirements ensure that eligible children are enrolled in the appropriate program without delay and without unnecessary paperwork barriers. At the same time, they give States ample leeway to design the system that works best for them. No one system is prescribed, but States will need to monitor and evaluate how well their system is working, and they will be held accountable for ensuring that the system they have designed and implemented complies with the statutory and regulatory requirements.

Comment: We received one comment that the regulations should clearly indicate that a State may cease accepting applications for its separate child health program when enrollment is closed.

Response: The State may stop accepting applications as one method of administering an enrollment cap. If the State is using a joint application, which is also an application for Medicaid, then the State must have provisions to assure that the Medicaid eligibility determination process is initiated, even if enrollment in the separate child health program has been suspended. If, after a State plan that does not authorize an enrollment cap is approved by HCFA, the State opts to restrict eligibility by discontinuing enrollment, the State must submit a State plan amendment in accordance with §§ 457.60 and 457.65 of this final rule.

Comment: Two commenters suggested that the preamble reiterate that a child who must meet a spend down does not have “other coverage” and may be eligible for the separate child health program.

Response: We have not required States to screen for Medicaid eligibility under the medically needy groups described in section 1902(a)(10)(C) of the Act because of the uncertainty inherent in determining whether andwhen a spend down has been met. A child who is not yet “medically needy” because he or she has not yet met the spend down requirements is not considered to be eligible for Medicaid for purposes of the screening requirement. However, an individual who could be eligible for Medicaid as medically needy with a spend down has a right to apply for Medicaid, and should be informed of the spend down category. If a child is eligible without a spend down or if it is determined that the spend down has been met, then the child would be eligible for Medicaid and would not be eligible for the separate child health program. Information about the State's medically needy program must be included in the information provided to applicants for a separate child health program.

Comment: In response to our request for comments on the extent of the Medicaid “stigma” problem and possible solutions, several commenters noted that poor coordination between separate child health programs and Medicaid expansions contributes to the stigmatization of Medicaid. One commenter noted that many working people take pride in their achievements and posited that they prefer to pay their own way rather than participate in what they perceive as a public assistance program. This commenter felt that people's desire for self-reliance is not an attitude that public policy can (or should) change.

According to the commenters, a program is more likely to be successful in insuring children if these attitudes are taken into account. Two commenters said that negative reactions to Medicaid are due to its historic association with welfare; discourteous or intrusive treatment by workers; difficult application processes; negative treatment by providers; negative personal experiences and those of friends and neighbors.

Several commenters suggested that the stigma can be alleviated by having a simple, joint enrollment process and creating a seamless environment. One commenter suggested that a non-public entity be allowed to enroll children in Medicaid. Another recommended that HCFA encourage States to offer applicants a choice of settings in which to be enrolled, because reliance on a public monopoly reinforces the stigma. Additional suggestions included giving both programs one name; adopting a joint application; eliminating asset tests; encouraging presumptive eligibility; expanding outreach and enrollment sites; eliminating face-to-face requirements; and offering a single application site. One commenter also recommended that HCFA continue to research best practices and promote them.

One commenter suggested that ensuring that providers in both programs are paid adequately and that provider networks in both programs provide convenient access to high quality services is a critical step as well. We received one suggestion that HCFA assess the barriers to Medicaid enrollment in each State and develop and implement a State-specific plan to address and remove such barriers. Several commenters asserted that the situation is difficult to resolve given the current statutory requirements and suggested that HCFA fund a study and make suggestions for legislative changes.

Response: We appreciate the responses on the stigma issue and have incorporated many of them in our guidance and suggestions to the States. We will continue to research and promote best practices and note that many States have successfully eliminated or greatly limited the welfare stigma which sometimes is associated with Medicaid and have converted Medicaid to a program that operates as, and is perceived to be, a health insurance program.

We encourage States to continue to simplify their processes and eliminate barriers to facilitate enrollment and retention among eligible individuals. We also encourage States to employ outreach efforts geared toward changing the perception that Medicaid is “welfare.” We urge States to make clear in all their informational materials about the TANF cash assistance program that coverage under Medicaid or a separate child health program is not linked to TANF eligibility or enrollment and that, whether or not families apply for or receive TANF assistance, they are encouraged to apply for Medicaid and any separate child health program.

8. Facilitating Medicaid Enrollment(§ 457.360)

Under section 2102(b)(3)(B) of the Act, States are required to ensure that children found through the screening process described above to be eligible for Medicaid apply for and are actually enrolled in Medicaid. We proposed in § 457.360(a) that the State plan must describe the reasonable procedures to be adopted to ensure that children found through the screening to be potentially eligible for Medicaid actually apply for and are enrolled in Medicaid, if eligible. Under proposed § 457.360(b), States must establish a process to initiate the Medicaid enrollment process for potentially Medicaid eligible children and several options for States are provided.

We also proposed to require at § 457.360(c) that a State ensure that families have an opportunity to make an informed decision about whether to complete the Medicaid application process by providing full and complete information, in writing, about (1) the State's Medicaid program, including the benefits covered and restrictions on cost-sharing; and (2) the effect on eligibility for coverage under the separate child health program of neither applying for Medicaid nor completing the Medicaid application process.

Comment: We received one comment that States should not be required to “ensure” that children enroll in Medicaid because States cannot dictate to families, but can only assist them.

Response: The statute specifically requires that States “ensure” that children are enrolled. It is correct that a family cannot be forced to apply for Medicaid and that States cannot ultimately “ensure” that an eligible child is enrolled. However, it is the responsibility of the State to remove barriers to enrollment, adopt procedures that promote enrollment of eligible children, and ensure that the family understands the benefits of Medicaid and the consequences of not applying for Medicaid.

Comment: We received a number of comments pertaining to the information about Medicaid which must be provided to families. One commenter stated that it was not reasonable to expect States to “ensure” that a family's decision not to apply for Medicaid is an informed decision and that this could lead to costly litigation over whether the State has taken sufficient measures. A significant number of commenters were concerned that States would be required to provide “reams” of in-depth information about Medicaid and commented that general information ordinarily provided to any family interested in applying for Medicaid should be sufficient. Finally, one commenter recommended that information about the benefits of Medicaid be provided to adolescents in a format and language that can be easily understood by both the adolescent and the family.

Response: Sufficient information must be provided to families to enable them to make an informed decision about completing an application for Medicaid. We agree that information about Medicaid eligibility and the benefits of Medicaid should also be in a format that adolescents can understand as appropriate. We also note that the provision of information to familiesunder proposed § 457.360(c), section § 457.350(g) of the final rule, only applies for States that use a separate application for their separate child health plan and those using a joint application which permits families to check a box on the application to elect not to apply for Medicaid.

In some cases, the general information provided ordinarily to any family interested in applying for Medicaid may provide sufficient information about Medicaid itself for these purposes. However, the State must also inform the family about the effect on eligibility for the separate child health program if the family chooses not to apply for Medicaid or not to complete the Medicaid application process, as many families will not realize that they do not have a choice between programs.

We have reconsidered the use of the term “ensure” because we agree that States cannot “ensure” that a decision is an informed one, no matter how much or how understandable the available information. States can only make the information available in an accessible way. We have revised the regulation at new § 457.350(g) (proposed § 457.360(c)) to require that States provide sufficient information to enable the family to make an informed decision.

Comment: One commenter suggested that, because Medicaid eligibility may result in automatic referral to CSE, States should inform families applying for the separate child health program about the rights and responsibilities associated with being found eligible for Medicaid, including the assignment of medical support rights and the right to claim an exemption from the cooperation requirements. The commenter is concerned that a mother applying for SCHIP, where there is no need for contact with the noncustodial parent, may not mention that she has been subject to domestic abuse at the time of applying, and might be automatically referred to CSE when there is good cause for not being referred.

Response: A Medicaid application for a child should not result in a referral to the CSE agency absent the cooperation of a parent. We agree that whenever a Medicaid or separate child health program application is filed, the family should be informed about the services offered by the CSE, its opportunity to take advantage of these services, and whether additional information will be required. Cooperation with establishing paternity and pursuing medical support is not a condition of a child's eligibility for Medicaid. Parents can be asked whether they would like to pursue medical support through CSE, but a cooperation in obtaining CSE cannot be required as a condition of a child's eligibility for Medicaid. If a parent also is applying for Medicaid, the parent should be informed of the acceptable reasons for refusing to cooperate and of the distinct consequences for the parent's and child's eligibility of not cooperating if none of the acceptable reasons applies.

Comment: One commenter noted that States should be given flexibility in the areas of application and enrollment. Another commented that the proposed regulations are overly prescriptive and exceed statutory authority by requiring States and SCHIP applicants to go through a tedious and administratively difficult process of obtaining a written waiver from applicants stating they do not wish to apply for Medicaid or complete a Medicaid application as required in proposed § 457.360(c).

Response: As discussed in the responses to several comments below, States have a great deal of flexibility in the areas of application and enrollment. There is no requirement that SCHIP programs ask families for a waiver; in fact, under title XXI, States do not have the option of enrolling children in the separate program if a Medicaid screen indicated the child may be eligible for Medicaid, even if a family waived their right to apply for Medicaid. States must inform families about the consequences for the child's coverage of not applying for Medicaid and develop systems to facilitate seamless enrollment in Medicaid for eligible children pursuant to § 457.350. Under § 457.350(f)(1), the State could suspend the child's application for the separate program unless or until a completed Medicaid application for that child is denied. This would preserve the child's initial application date and ensure follow-up on the part of the State SCHIP agency after the specified time period had elapsed.

Alternatively, a State may deny, or provisionally deny, the separate child health program application. As discussed earlier, if a State provisionally denies the application and the child is subsequently determined ineligible for Medicaid, the child's initial separate child health program application should be reactivated as soon as the SCHIP agency learns of the denial of Medicaid eligibility. The family would not need to provide any additional information (unless there has been a change in circumstances that could affect eligibility). If the child chooses not to apply for Medicaid, the denial or provisional denial under a separate child health program will stand (unless the child's circumstances change and a new screen shows that the child no longer appears potentially eligible for Medicaid).

Comment: Several commenters were concerned that the application process for Medicaid would be a barrier to enrollment in a separate child health program. Some expressed concern that the proposed rule would fail to prevent States from using unnecessary administrative barriers and hostile or adversarial treatment by Medicaid eligibility workers as a means of discouraging families from successfully completing a Medicaid application and one urged HCFA to prevent States from requiring that applicants screened potentially Medicaid-eligible go through complicated, time-consuming and demeaning processes. Two recommended that HCFA prohibit States from making the process for applying for Medicaid more burdensome, onerous or time-consuming than the process for applying for a separate child health program. A few urged that the screen and enroll requirements be enforced, monitored, and evaluated to ensure that all children eligible for Medicaid are reached. One of the commenters urged HCFA to set high standards to ensure that States actually enroll screened children in Medicaid.

Response: Section 2102(b)(3)(B) of the Act requires States to describe in their State plan their procedures for ensuring that children screened potentially eligible for medical assistance under the State Medicaid plan under title XIX are enrolled in Medicaid. We have implemented that statutory provision at § 457.350(a)(1). A simple referral to the Medicaid agency is not enough to meet this requirement. In § 457.350, we require that States take reasonable action to facilitate the Medicaid application process and to promote enrollment of eligible children into Medicaid.

We do not have the statutory authority to require any particular application process, or that the Medicaid application process be no more difficult than the application procedures for separate child health programs. However, we appreciate the commenters' concerns and encourage States to examine their administrative systems and to simplify and minimize barriers in their application and enrollment processes for both Medicaid and separate child health programs to the extent possible. We are pleased that most States are moving in this direction and will continue to provide technical assistance on this matter as needed.

Given Congressional concern that title XXI funds not be used to supplant existing health insurance coverage, ensuring compliance with the screen and enroll requirements of title XXI is a high priority for HCFA and will be strictly monitored, evaluated, and enforced. As previously discussed, we have added a new § 457.353(a) to require States to monitor and establish a mechanism to evaluate the processes adopted by the State to implement the screen and enroll provisions of § 457.350.

Comment: Two commenters recommended that States be required to send a notice after an initial screen finds potential Medicaid eligibility.

Response: The State needs to provide written notice of any determination of eligibility under § 457.340(d). If the State determines that an applicant is ineligible for coverage under its separate child health program, the State must provide written notice of that determination. In addition, under § 457.350(g) the State must provide families with information to enable them to make an informed decision about applying for Medicaid; and under § 457.350(f)(3), if a State does not use a joint application for Medicaid and its separate child health program, applicants that are screened potentially Medicaid-eligible must be given notice that they have been found potentially eligible for Medicaid, and be offered assistance in completing a Medicaid application (if necessary), and provided information about what is required to complete the Medicaid application process.

Comment: We received two comments related to the effective date of an application. One commenter requested that the regulations clarify that if a joint application is used, the date of the application for a separate child health program is also the date of application for Medicaid. One commenter believed that if an application for the separate child health program is denied, the State must provide notice to the applicant and must also continue to process the Medicaid application within the 45-day time frame.

Response: If a State uses a joint application for Medicaid and its separate child health program, the date of application for Medicaid may or may not be the same as the date of application for the separate program. As indicated earlier, this is because the State agency that determines eligibility for Medicaid may not be the same entity that determines eligibility for the separate program. In some cases, it may not be reasonable to hold the Medicaid agency responsible for determining eligibility within 45 days when it could not have initiated the determination process until the application was transmitted from the entity administering the separate child health program.

The SCHIP entity's responsibility in this case is to promptly transmit the application to the Medicaid agency immediately following the screen. Under most circumstances, the term “promptly” means that the entire process (including screening and facilitation between the separate child health program and Medicaid) should be completed within 45 days. However, we recognize that there are also circumstances where the timing of the process is beyond the control of the separate child health program and the separate child health program. For example, if the process for determining Medicaid eligibility after a screen reveals that the child's family income has changed, making them eligible for the separate child health program, we understand that the transfer back and forth between programs can take additional time.

If a State uses separate applications for its separate child health program and Medicaid, States can but are not required to establish the date the separate application was filed as the effective date of filing for Medicaid. States have flexibility under the Medicaid program to establish the effective date of a Medicaid application. The regulations at § 431.636 of this chapter do require that the SCHIP agency and the Medicaid agency coordinate to design and implement procedures that are developed to coordinate eligibility to ensure that eligible children are enrolled in the appropriate program in a timely manner.

Comment: Two commenters recommended that the regulations require that, even if a separate application is used for the separate child health program, the application form and any supporting verification must be transmitted to the appropriate Medicaid office for processing without further action by the applicant to initiate a Medicaid application. One commenter recommended that if an applicant is required to take any additional steps in order to apply for Medicaid, that the Medicaid agency inform the family of the steps it must take.

Response: As discussed above, under § 457.350(f)(3), States that use a separate application must provide an applicant screened potentially eligible for Medicaid with a Medicaid application; offer assistance in completing the application, including providing information about any additional information or documentation needed to complete the Medicaid application process; and send information and all relevant documentation obtained through the screening process to the appropriate Medicaid office or to Medicaid staff, to begin the Medicaid application process. An application for Medicaid would then be processed in accordance with Medicaid rules and regulations. Documentation (or photocopies) must be forwarded to the Medicaid agency along with other information wherever feasible. The family cannot be required to repeat information or provide documentation more than once. However, a separate child health application is not an application for Medicaid unless the State allows it to be used as such. Some States do use the separate child health program application as the Medicaid application when a child is screened as potentially eligible for Medicaid. This practice relieves the family and the State of the need to complete and review another application form.

As part of meeting their obligations under section 2102(b)(3)(B) of the Act, States must adopt reasonable procedures to ensure that a Medicaid application for children screened potentially eligible for Medicaid is completed and processed (provided that the family has not indicated that it does not wish to apply for Medicaid for the child). The obligations of the Medicaid agency in meeting this requirement are set forth in § 431.636 and discussed further in subpart M of this preamble, “Expanded coverage of children under Medicaid and Medicaid coordination.”

Comment: A number of commenters suggested that the procedures in the regulations for facilitating Medicaid enrollment should specifically require that application assistance include bilingual workers, translators and language appropriate material or that the requirements of title VI and the ADA should be explained in the preamble. One commenter recommended that this include examples of how States and contracted entities can comply with these requirements.

Response: As required by § 457.130, the State plan must include an assurance that the State will comply with all applicable civil rights requirements. In addition, § 457.110 requires that States provide to potential applicants, applicants and enrollees information about the program that is linguistically appropriate and easily understood. Such materials and services, as well as compliance with the ADA, are required and important ifStates are to effectively reach and enroll all groups of eligible children. We elected not to explain in detail all applicable civil rights requirements identified under § 457.130. However, interested parties can obtain additional information on these requirements by contacting the U.S. Health and Human Services' Office for Civil Rights.

9. Application for and Enrollment in a Separate Child Health Program § 457.340 (Proposed § 457.361)

Because we believe that the provisions of this section are closely related to those contained in proposed 457.340, in this final rule, we have incorporated the provisions of these two sections in the final regulation at § 457.340. However, we will respond to comments to proposed § 457.361 here.

In this section, we proposed to require that States afford individuals a reasonable opportunity to complete the application process and offer assistance in understanding and completing applications and in obtaining any required documentation. Furthermore, we proposed to require that States inform applicants, in writing and orally if appropriate, about the eligibility requirements and their rights and responsibilities under the program.

We noted in the preamble to the proposed rule that, although not specifically addressed in statute, a State may choose to provide a period of presumptive eligibility during which services are provided, although actual eligibility has not been established.

We proposed that the State must send each applicant a written notice of the decision on the child health application and that the State agency must establish time standards, not to exceed forty-five calendar days, for determining eligibility and inform the applicant of those standards. In applying the time standards, the State must count each calendar day from the day of application to the day the agency mails written notice of its decision to the applicant. We also proposed that the State agency must determine eligibility within the State-established standards except in unusual circumstances and that the State must specify in the State plan the method for determining the effective date of eligibility for a separate child health program.

In addition to the changes made in response to the comments discussed below, we have modified the language in § 457.361(c) (§ 457.340(d) in this final regulation) to clarify that States must notify families whenever a decision affecting a child's eligibility is made—whether the decision involves denial, termination or suspension of eligibility. In the case of a termination or suspension of eligibility, the State must provide sufficient notice, in accordance with § 457.1180, to enable the child's parent or caretaker to take any appropriate actions that may be required to allow coverage of the child to continue without interruption. This clarification has been added in response to comments in order to ensure that children do not experience an unnecessary break in coverage because they have reached the end of an enrollment period.

Comment: Several commenters stated that HCFA should require States to notify the public of the priority standards, if any, for enrollment; inform individuals of their status on any waiting list; and maintain sufficient records to document that favoritism or discrimination does not occur in selecting individuals for enrollment.

Response: As discussed in the preamble to § 457.305, above, if a State plans to institute a waiting list or otherwise limit enrollment, it must include in its State plan a description of how the waiting list will be administered, including criteria for how priority on the list will be determined. In addition, § 457.110 requires States to inform applicants about their status on a waiting list.

Comment: We received several comments on the proposed requirement that a State determine eligibility under a separate child health program within 45 days. One commenter stated that the date of the application should not be the beginning of the 45 day period but rather the date that the application is received in the separate child health program eligibility office as there could be a delay for mailed-in applications. Another commented that the 45-day requirement does not take into account delays in obtaining necessary verifications from third parties such as employers or insurers. They suggested adding “or other party with information needed to verify the application [delays * * *]” or just requiring States to determine eligibility in a timely manner. A third supported establishing a 45-day time limit and prohibiting the use of time standards as a waiting period, but recommended that the regulations provide more specificity regarding when notice of rights and responsibilities must be given and a notice of decision provided. Another commenter felt that the 45-day requirement should be removed, that mirroring Medicaid is burdensome and costly, and allowing mail-in and drop-off applications may mean it will take longer to reach people to get all the necessary information.

Response: We have not changed the requirement in § 457.340(c) (proposed § 457.361(d)) that States must determine eligibility for a separate child health program within 45 calendar days (or less if the State has established a shorter period) from the date the application is filed. We have, however, clarified § 457.340(c)(2) (§ 457.361(d) in proposed rule) to require that States determine eligibility and issue a notice of decision promptly, but in any event not to exceed the time standards established by the State. This is consistent with the requirement that child health assistance be provided in an efficient manner, and that the 45-day period—or other time period specified by the State—may not be used as a waiting period. States have flexibility in deciding when an application is considered filed.

We agree that States should not be held responsible for delays caused by third parties beyond the State's control and have accommodated that concern in § 457.340(c)(2). We also have revised § 457.340(b) to specify that the notice of rights and responsibilities must be provided at the time of application. This ensures that families have the information they may need to proceed with the application process and successfully enroll their child.

Comment: We received two comments objecting to the requirement in § 457.340(a) that States assist families in obtaining documentation. They commented that States are not in a position to do this and that the requirement has the potential for enormous administrative burden.

Response: We will not be removing the phrase from the regulation, but will offer clarification related to this provision as we think the commenter may have misinterpreted the proposed rule. We expect that, in offering application assistance, the State or contractor for the separate child health program will provide assistance to applicants in understanding what documentation is needed to complete their applications and, to the extent possible, will assist applicants in determining where they might obtain the needed information. For example, if the State's application process requires verification of income and the applicant does not understand how they can prove their income, we would expect the State or the individual providing application assistance to be able to inform the family of the type of documentation (e.g., pay stubs or W-2 forms) needed and where the applicant might be able to obtain that information (e.g., from their employer). We do not expect a State to literally perform thetask of obtaining the documentation for the applicant, unless it so chooses or the document is readily available to it, and agree with the commenters that such a requirement would be administratively burdensome. Most States have produced application materials and program brochures and operate telephone help lines that provide the type of assistance required by the regulation.

10. Eligibility and Income Verification (§ 457.360)

In this final regulation, we have moved two provisions of proposed § 457.970, concerning eligibility and income verification, to new § 457.360. In proposed § 457.970, we proposed to require that States have in place procedures designed to ensure the integrity of the eligibility determination process, and to abide by verification and documentation requirements applicable to separate child health programs under other Federal laws and regulations.

We proposed that States have flexibility to determine these documentation and verification requirements. In the preamble, we encouraged States to adopt procedures that ensure accountability while permitting self-declaration to minimize barriers in the application and enrollment process.

We also noted at § 457.970(c) that States with separate child health programs may choose to use the Medicaid income and eligibility verification system (IEVS) for income and resources, although they are not required to do so.

Finally, in § 457.970(d) we proposed to allow States to terminate the eligibility of an enrollee for “good cause” (in addition to terminating eligibility because the enrollee no longer meets the eligibility requirements)—e.g., providing false information affecting eligibility. Under the proposed regulations, the State would have to give such enrollees written notice setting forth the reasons for termination and providing a reasonable opportunity to appeal, consistent with the requirements of proposed § 457.985.

Note that, in this final regulation, we have eliminated any specific reference to income verification systems, as income requirements are but one of a number of requirements for eligibility under a separate child health program.

Comment: One commenter expressed support for the flexibility HCFA gives States for verifying eligibility and income. Another recommended requiring that States' eligibility and income verification processes be designed to minimize barriers to and facilitate enrollment, and that the regulations explicitly provide that States may use self-declaration of income and assets. A third suggested that HCFA should include a description of the opportunity that States have to use innovative quality control projects to ensure that allowing families to self-declare income does not increase the rate of erroneous enrollment.

Response: We appreciate the support for the flexibility afforded to States and encourage States to adopt eligibility and income verification procedures that do not create barriers to enrollment. At the same time, States must have effective methods to ensure that SCHIP funds are spent on coverage for eligible children. We note that States can use their discretion in establishing reasonable verification mechanisms and have included this in the regulation text at § 457.360(b). We also encourage the creation of innovative projects to promote program integrity.

As stated in the preamble to the proposed rule, we also encourage States to develop eligibility verification systems using self-declaration or affirmation, and have decided to include this in the regulation text at § 457.360(b), to eliminate any question about the rule. States may use the existing IEVS system to verify income, as long as the information was provided voluntarily. While States may ask for voluntary disclosure of Social Security numbers, disclosure of such information cannot be made a condition of eligibility. States may use existing IEVS systems to verify income, as long as the information was provided voluntarily. We note that the integrity of a system which relies on self-declaration can be ensured through a variety of techniques. For example, a State could conduct a random post-eligibility check, requiring some applicants to provide documentation, or it could run computer matches of information provided by applicants against information available to the State through other sources.

Finally, we have deleted proposed § 457.970(a)(2) (requiring compliance with the verification and documentation requirements applicable to separate child health programs under other Federal laws and regulations) because it does not provide meaningful guidance to States on what they can and cannot do in designing their verification systems. If the system proposed violates other Federal laws or regulations, we will work with the State to bring its system into compliance.

Comment: One commenter noted his concern that the regulation authorizes States to terminate coverage of children for misconduct of a parent/caretaker and suggested that HCFA revise the definition of “good cause” to be more limiting. This commenter also noted his concern that the reference in proposed paragraph (d) to termination for good cause is troubling. The example of good cause as reporting false information on the application form does not seem to be good cause for a child losing benefits if the false statement does not affect the child's eligibility. The commenter stated that this kind of standard is highly subjective and susceptible to abuse given the large amount of discretion States already have in administering their plans.

Response: We agree with the commenter's concern and have deleted the good cause provisions from the regulation text accordingly. Children should not lose eligibility, as long as they meet the eligibility standards under the approved State plan and consistent with title XXI requirements. Further discussion of these issues can be found in Subpart K.

11. Review of Adverse Decisions (§ 457.365)

Finally, we proposed in the NPRM to require that States provide enrollees in separate child health programs with an opportunity to file grievances and appeals for denial, suspension, or termination of eligibility in accordance with § 457.985. In an effort to consolidate all provisions relating to review processes in new subpart K, we have removed proposed § 457.365. Comments on proposed § 457.365, are addressed in full in Subpart K—Applicant and Enrollee Protections.

D. Subpart D—Coverage and Benefits: General Provisions

1. Basis, Scope, and Applicability (§ 457.401)

As proposed, this subpart interprets and implements section 2102(a)(7) of the Act, which requires that States make assurances relating to certain types of care, including assuring quality and appropriateness of care and access to covered services; section 2103 of the Act, which outlines coverage requirements for children's health benefits; section 2109 of the Act, which describes the relation of the SCHIP program to other laws; section 2110(a), which describes child health assistance; and certain provisions of section 2110(c)(6) of the Act, which contains definitions applicable to this subpart. The requirements of this subpart apply to child health assistance provided under a separate child health program and do not apply to Medicaid expansion programs even when funding is basedon the enhanced Federal medical assistance percentage. We received no comments on this section and have retained the language in this final rule.

2. Child Health Assistance and Other Definitions (§ 457.402)

Proposed § 457.402 set forth the definition of child health assistance as specified in section 2110(a) of the Act. We did not propose to include any additional services in the definition of child health assistance or attempt to further define the services set forth in the Act in order to give States flexibility to provide these services as intended under the statute. Accordingly, we proposed that the term “child health assistance” means payment for part or all of the cost of health benefits coverage provided to targeted low-income children through any method described in § 457.410 for any of the following services as specified in the statute:

• Inpatient hospital services.

• Outpatient hospital services.

• Physician services and surgical services.

• Clinic services (including health center services) and other ambulatory health care services.

• Prescription drugs and biologicals and the administration of such drugs and biologicals, only if such drugs and biologicals are not furnished for the purpose of causing, or assisting in causing, the death, suicide, euthanasia, or mercy killing of a person.

• Over-the-counter medications.

• Laboratory and radiological services.

• Prenatal care and prepregnancy family planning services and supplies.

• Inpatient mental health services, other than inpatient substance abuse treatment services and residential substance abuse treatment services, but including services furnished in a State-operated mental hospital and including residential or other 24-hour therapeutically planned structured services.

• Outpatient mental health services, other than outpatient substance abuse treatment services, but including services furnished in a State-operated mental hospital and including community-based services.

• Durable medical equipment and other medically related or remedial devices (such as prosthetic devices, implants, eyeglasses, hearing aids, dental devices and adaptive devices).

• Disposable medical supplies.

• Home and community-based health care services and related supportive services (such as home health nursing services, personal care, assistance with activities of daily living, chore services, day care services, respite care services, training for family members and minor modification to the home.)

• Nursing care services (such as nurse practitioner services, nurse midwife services, advanced practice nurse services, private duty nursing, pediatric nurse services and respiratory care services) in a home, school, or other setting.

• Abortion only if necessary to save the life of the mother or if the pregnancy is the result of rape or incest.

• Dental services.

• Inpatient substance abuse treatment services and residential substance abuse treatment services.

• Outpatient substance abuse treatment services.

• Case management services.

• Care coordination services.

• Physical therapy, occupational therapy, and services for individuals with speech, hearing and language disorders.

• Hospice care.

• Any other medical, diagnostic, screening, preventive, restorative, remedial, therapeutic, or rehabilitative services (whether in a facility, home, school, or other setting) if recognized by State law and only if the service is prescribed by or furnished by a physician or other licensed or registered practitioner within the scope of practice as defined by State law; performed under the general supervision or at the direction of a physician; or furnished by a health care facility that is operated by a State or local government or is licensed under State law and operating within the scope of the license.

• Premiums for private health care insurance coverage.

• Medical transportation.

• Enabling services (such as transportation, translation, and outreach services) only if designed to increase the accessibility of primary and preventive health care services for eligible low-income individuals.

• Any other health care services or items specified by the Secretary and not excluded under this subchapter.

We proposed to define the terms “emergency medical condition,” “emergency services, and “post-stabilization services” to give full meaning to the statutory requirement at section 2102(a)(7)(B) of the Act that States assure access to emergency services consistent with the President's directive to Federal agencies to address the Consumer Bill of Rights and Responsibilities, which includes the right to access to emergency services. We proposed to define the term “emergency medical condition” as a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that a prudent layperson, with an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in—

• Serious jeopardy to the health of the individual or, in the case of a pregnant woman, the health of a woman or her unborn child;

• Serious impairment of bodily function; or

• Serious dysfunction of any bodily organ or part.

We proposed to define the term “emergency services” as covered inpatient or outpatient services that are furnished by any provider qualified to furnish emergency services without requirement for prior authorization and needed to evaluate or stabilize an emergency medical condition. Because these terms are used throughout the regulation, we have moved the definitions of “emergency services” and “emergency medical condition” to § 457.10, the overall definitions section. The comments and responses related to these definitions are addressed in § 457.10.

We proposed to define “post-stabilization services” to mean covered medically necessary non-emergency services furnished to an enrollee after he or she is stabilized related to the emergency medical condition.

We proposed to define “health benefits coverage” as an arrangement under which enrolled individuals are protected from some or all liability for the cost of specified health care services.

Comment: A commenter agreed that our definition of “child health assistance” is appropriate and considered the specific identification of advanced practice nursing services at § 457.402(a)(14) to be crucial to ensuring that children in fact receive the care to which they are entitled by statute.

Response: We appreciate the commenter's support for our definition. The proposed regulation set forth the definition of child health assistance as specified in section 2110(a) of the Act. The provision of advanced practice nursing services is specifically identified in that section as a coverable service.

Comment: One commenter questioned why well-baby care, well-child care and immunizations are not explicitly included in the list of definitions. These benefits are the cornerstone of pediatric care and the commenter indicated that it is important that they are explicitly included wherever appropriate.

Response: Section 2102(a)(7) of the Act provides the authority for requiring that well-baby and well-child care and immunizations be included under every State plan. Well-baby and well-child care and immunizations were not specified in the statutory definition of “child health assistance” at section 2110 of the Act, although they clearly fall within this definition of “child health assistance.” Additionally, well-baby and well-child care are not separate categories of services, but can include services that are in any or all of the separately defined categories of services. However, because these terms are used throughout the regulation we have included them in the definitions at § 457.10. These services are also discussed at §§ 457.410 and 457.520.

Comment: One commenter was concerned about the definition of post-stabilization services and the language in the preamble stating that HCFA would expect States and their contractors to treat post-stabilization services in the same manner as required for the Medicare and Medicaid programs, while recognizing that not all such services would be necessarily covered by the State for purposes of SCHIP.

While the commenter did not object to permitting States to apply to separate child health programs an interpretation of post-stabilization services that is the same as that under Medicaid and Medicare, they believed that HCFA should give States flexibility to treat the coverage of post-stabilization services differently depending upon the structure of the State program. A State that designs its separate child health program to mirror its Medicaid program would want to retain the same interpretation for both programs. However, a State that models its program after commercial coverage would want to adopt an interpretation that is applicable to commercial coverage that is offered by MCEs. Such flexibility would be particularly important if the State decides to provide coverage to SCHIP eligibles by purchasing coverage from employer group health plans to cover children. In those cases, the emergency services requirement should parallel those applicable to the employer's group health insurance coverage. The commenter recommended that the proposed regulation be revised to reflect this needed flexibility.

To the extent that States adopt or HCFA requires use of the interpretation of the post-stabilization services requirements applicable under the Medicaid and Medicare programs, the commenter reiterated its comments on the Medicaid managed care notice of proposed rulemaking and the interim final Medicare+Choice regulation. The issue of concern to this commenter was whether the requirement that Managed Care Entities (MCEs) respond to requests for approval of post-stabilization services within one hour is reasonable.

The commenter expressed considerable concern about requirements for post-stabilization care for MCEs, particularly the requirement that MCEs respond to requests for approval of post-stabilization care within one hour. The commenter suggested conditions to moderate the effect of this requirement.

Response: We agree with the commenter that States should have the flexibility to treat coverage of post-stabilization services differently depending on the health benefits coverage elected by the State. The preamble to the proposed rule may have been misleading by appearing to require the provision of post-stabilization services under a separate child health program, therefore, we have removed the references to post-stabilization services, covered or otherwise, from the final rule. We hope that this will minimize confusion.

Comment: Several commenters on proposed § 457.995 had other concerns regarding the provision of post-stabilization services for individuals in managed care. These commenters expressed concern that managed care organizations should be allowed to control their own networks. A payment network needs the flexibility to require a patient to be transferred to an appropriate facility within its network after the emergency has been stabilized. According to these commenters, this regulation takes the control of non-emergency services away from the network and gives it to a non-network provider and could defeat the concept of managed care. The commenters believed that when emergency care is provided outside of the MCE network, it is usual and customary for the patient to be transferred to an appropriate facility within their MCE network for required post-stabilization services.

Response: Proposed § 457.995(d), the provision in the overview of beneficiary rights referencing post-stabilization services, has been removed from the regulations text along with the rest of § 457.995 for the sake of clarity and consistency.

Comment: One commenter noted that the preamble to the proposed rule indicates that HCFA considered defining transportation to include coverage for transportation to more than primary and preventive health care as stated in the law. However, the commenter noted that HCFA decided to leave the option of establishing the definition to the States. The commenter regarded transportation as including urgent and emergent care and that transfer/transport to a hospital or health facility for urgent and emergent care should be included in a child's health benefit package.

Response: Under the list of services in section 2110(a) of the Act and § 457.402 of this final regulation, transportation is mentioned in two different items: (26) medical transportation and (27) enabling services (such as transportation, * * *). While coverage for transportation services is not required, almost every State already provides coverage for emergency transportation under its State plan. Therefore, we do not see lack of coverage of this service as a problem and will not further define transportation services.

Comment: We received several comments on proposed § 457.402(a)(26), redesignated as paragraph (27), which provides for enabling services (such as transportation, translation, and outreach services) only if designed to increase the accessibility of primary and preventive health care services for eligible low-income individuals. One commenter indicated that States should be required to fund community health centers to provide outreach activities and enabling services such as translation and transportation (rather than, or in addition to, outreach costs that are reimbursed under administrative accounts).

Several other commenters indicated that the phrase “outreach services * * * only if designed to increase the accessibility of primary and preventive health care services for eligible low-income individuals” is ambiguous and requested clarification. They noted that this phrase could be read to permit a State to pay primary health providers such as health centers to conduct outreach activities to find eligible children as part of their overall child health assistance services (rather than, or in addition to, outreach costs that are reimbursed under administrative accounts). The commenter noted that this is important because the SCHIP statute caps States' overall administrative costs and thus has been viewed as providing insufficient funds to support the types of outreach efforts that experts say are necessary to find eligible children. To the extent that the phrase “outreach * * * to eligible low-income individuals” is interpreted as the identification of eligible children, then this represents an important optionfor States and health centers. States could build outreach funds into their payments to SCHIP primary care providers, along with funding for other forms of enabling services, such as translation and transportation costs.

In the context of payment to primary health care providers, one commenter also indicated that States could build funds for outreach and enabling services into their payments to SCHIP primary care providers. The commenter indicated that community clinics and health centers in its State are encountering difficulties and confusion when being audited for purposes of receiving cost-based reimbursement from the State.

Response: In developing their State plans, States determine their own providers. We cannot require that community health centers be funded to provide outreach and enabling activities. The language of proposed § 457.402(a)(26) was taken directly from the language at section 2110(a)(27) of the Act. Enabling services, including outreach to assist children's access to primary and preventive care, are one of the types of services States may choose to provide as part of the “child health assistance” that meets the requirements of section 2103 of the Act. We note that under the terms of section 2110(a) and 2110(a)(27), these services must be delivered to “targeted low-income children” who are “eligible” for “child health assistance” under the State plan. Therefore, when enabling services are provided as part of the health benefits coverage for children who are found eligible and enrolled, these services would not be subject to the 10 percent cap on administrative expenditures under 2105(c) of the Act. However, outreach initiatives to potentially eligible children are subject to the 10 percent cap in accordance with section 2105(a)(2)(C) of the Act. We do not understand the commenter's specific concerns regarding difficulties in receiving cost-based reimbursement in the State's community clinics and health centers so we are unable to respond to this comment. (We note that, in this final rule, we have listed physician services and surgical services (proposed § 457.402(a)(3)) separately as paragraphs (3) and (4), respectively. As a result, the services listed at paragraphs (a)(4) through (a)(27) have been redesignated as paragraphs (5) through (28). Enabling services are now listed at paragraph (27).)

Comment: One commenter noted its belief that the preamble should encourage States, in selecting among benefits to cover, to consider the needs of different age groups, their varying health status and patterns of morbidity and mortality, the impact of developmental states on their needs and their patterns of utilization. They observe, for example, that coverage of over-the-counter medications may be of particular benefit to adolescents. Also, eating disorders are more common among adolescents than younger children, and family planning services should include a choice among all contraceptive methods and options.

Response: We concur with the commenter and encourage States to consider the populations they are serving and the needs of different age groups when designing their benefit package States need only cover medically necessary and appropriate services, but the statute at section 2102(a)(7) and the regulations at § 457.495, specifically require States to specify the methods they will use to assure appropriate care.

Comment: Two commenters noted that the language on services in the proposed rule was set out identically to the language in the statute. The commenters were concerned that the definition of both inpatient and outpatient mental health services excludes substance abuse treatment services, which are listed separately in the statute and the regulation. One commenter was concerned that this separation means only that payment may be made for these services, not that payment shall be made for these services and believes that States should be encouraged to consider their inclusion for comprehensive treatment for adolescents with co-occurring mental and substance abuse disorders.

Similarly, another commenter is concerned that the separation of outpatient substance abuse treatment services may allow the provision of outpatient mental health services but not the provision of outpatient substance abuse services, but would include services furnished in a State-operated mental hospital and community-based services. The commenters indicated that substance abuse impacts a significant number of children in their States and rather than removing this important benefit, they recommended that the regulations need to encourage and even highlight the importance of offering this benefit.

The commenter noted that while the listings for mental health inpatient and outpatient services in the regulations specifically exclude substance abuse services, these services are listed separately from inpatient and outpatient mental health services. The commenter called attention to this because of the high incidence of co-occurring disorders among adolescents with presenting symptoms of one or the other. Even though these services lack the 75 percent actuarial measure required when mental health services (and/or prescription drugs, vision and hearing services) are included, States should consider their inclusion for comprehensive treatment of adolescents with co-occurring mental and substance abuse disorders.

Response: We appreciate the commenter's view about the importance of respite care services. As we have indicated previously, the proposed rule at § 457.402 mirrors the language of section 2110(a). Therefore, inpatient mental health services and inpatient substance abuse treatment services, as well as outpatient mental health services, and outpatient substance abuse treatment services are listed separately in the regulation as they were in the statute. States choose to cover services from the list of services under the definition of “child health assistance” when they select a health benefits coverage option under § 457.410. The statute supports mandating that only three types of services, well-baby and well-child services, immunizations, and emergency services, be included in all SCHIP plans regardless of the type of health benefits coverage chosen. HCFA encourages States to provide inpatient and outpatient substance abuse services. A State may choose to provide inpatient mental health and substance abuse services; however the statute provides flexibility for the States in determining the scope of covered benefits.

We do, however, call the commenter's attention to the requirement in § 457.120 of the regulations for ongoing public input in the development and implementation of SCHIP plans. Comments and concerns about benefits and coverage should be directed to and taken under consideration by the State SCHIP agency. We encourage States to consider the populations they are serving and the needs of different age groups when designing their benefit packages.

Comment: One commenter particularly noted the inclusion in § 457.402 of “respite care services and training for family members,” which are especially relevant to families with children with severe and persistent mental illness or brain disorders. The commenter stated that it would appreciate attention being called to these services' eligibility for coverage and relevance in plans that offer supplemental mental health services, in addition to other services, “i.e., respite care, advanced practice nurse services,and pediatric nurse services * * * in a home, school or other setting.”

Response: As we have indicated previously, States that implement separate child health programs are given broad flexibility to design their benefit packages. We encourage commenters to work with their States to assure that valuable health care services are made available to children to the extent possible in each State.

Comment: One commenter recommended § 457.402 be deleted because the statute provides States with flexibility in the design of the SCHIP benefit package and this section implies that coverage for certain services should be available under SCHIP when it is not required by statute and may not be included in the state-designed benefit package.

Response: Section 2110 of the Act allows for payment for part or all of the cost of health benefits coverage (as defined at § 457.10) for any services listed in section 2110(a) of the Act as implemented in § 457.402. These provisions do not indicate that States must provide all of these services; rather, they list the array of services for which payment may be made. We disagree with the commenter and have not deleted this section from the proposed rule.

3. Health Benefits Coverage Options (§ 457.410)

Under the authority of section 2103 of the Act, at proposed § 457.410, we listed the four options a State has for obtaining health benefits coverage for eligible children. Specifically, we proposed that States may choose to provide benchmark coverage, benchmark-equivalent coverage, existing comprehensive State-based coverage, or Secretary-approved coverage. These four options are described at §§ 457.420 through 457.450.

Based on the authority of section 2102(a)(7) of the Act, we also proposed at § 457.410(b) to require that a State must obtain coverage for well-baby and well-child care, immunizations in accordance with the recommendations of the Advisory Committee on Immunization Practices (ACIP), and emergency services. We noted that the State must cover these services even if coverage for these services is not generally included in the health benefits coverage option selected by the State.

We proposed to define well-baby and well-child care for purposes of cost sharing at proposed § 457.520(b), but we proposed to allow States to define well-baby and well-child care for coverage purposes. We encouraged States, however, to adopt the benefits and periodicity schedules recommended by a medical or professional organization involved in child health care when defining well-baby and well-child care coverage.

Comment: Two commenters supported the requirement that States use the ACIP schedule for immunizations under their separate child health programs. However, many commenters disagreed with the proposal that States be required to follow the immunization schedule of the ACIP, particularly because they are not allowed to participate in the VFC program. It was suggested that States should be able to adopt their own immunization periodicity schedules. One commenter suggested that we rewrite this section to require “immunizations as medically necessary” rather than require that immunizations be provided according to the ACIP schedule. Several commenters suggested that a State that utilizes existing commercial health plans may not use any particular standard immunization schedule or may follow other professional standards. One commenter mentioned that its State uses another standard, the recommended childhood immunization schedule jointly adopted by the American Academy of Pediatrics (AAP), the ACIP, and the American Academy of Family Physicians (AAFP).

Response: Section 2102(a)(7)(A) requires that a State child health plan include a description of a State's methods to assure the quality and appropriateness of care, “particularly with respect to * * * immunizations provided under the plan.” In order to ensure that all SCHIP children are appropriately immunized, States should use a uniform, nationally recognized schedule of immunizations. The ACIP schedule referred to in the proposed rule is a harmonized schedule approved by the ACIP, the AAP, and the AAFP. It is referred to as the “Childhood Immunization Schedule of the United States.” The AAP and AAFP no longer develop and maintain separate immunization schedules but rather use the harmonized ACIP schedule. This ACIP schedule is the same as the standard referenced by one of the commenters as the schedule relied on by its State. States should use the ACIP schedule because it reflects the current standards of these pediatric speciality providers who are the recognized authorities in childhood immunizations.

Comment: Several commenters expressed their belief that requiring SCHIP programs to use the ACIP immunization schedule is overly prescriptive and has no basis in the statute. According to one commenter, the only statutory limit on States' discretion is found in section 2102(a)(7)(A), which indicates that the State plan must include a description of the methods used to assure the quality and appropriateness of care, particularly with respect to immunizations. The commenter cited Executive Order 13132 on federalism, and asserted that, consistent with that authority, States should be permitted to select their own immunization standards unless HCFA can demonstrate both a need for a federal standard and that it has considered alternatives that would preserve the States' prerogatives.

Response: As described in the response to the previous comment, section 2102(a)(7)(A) of the Act provided authority to require immunizations in accordance with the recommendations of ACIP. Therefore, the requirement to use the ACIP schedule is not a violation of E.O. 13132. The ACIP schedule is a national standard developed and approved by three national medical organizations involved in child health care services, the ACIP, the AAP and the AAFP. These organizations use the harmonized ACIP immunization schedule and no longer use separate immunization schedules. Requiring coverage for appropriate immunizations at appropriate times, as the ACIP schedule recommends, does not place undue burden on States given the importance of childhood immunizations. In fact, it releases States from the burden of having to develop or choose their own individual schedules and establish the adequacy of those schedules with respect to title XXI statutory requirements. Given the unique nature of infectious diseases, and the mobility of the population across State lines, it is necessary to require a uniform approach to immunizing children across all States.

Comment: One commenter believed the 90-day requirement explained in the preamble to the proposed rule for States to adhere to any changes in the ACIP recommendations is inappropriate. The current policy is that States have 90 days from the publication of the revised ACIP schedule in the Morbidity and Mortality Weekly Report to implement those changes in their programs. The commenter believed that this requirement fails to recognize the realities of effectuating such a change in benefits. States should have until the end of the current contract period but in no case longer than one year to comply with any ACIP changes.

Response: It is essential for children to receive vaccines according to the most current ACIP recommendations inorder to maximize children's health, minimize morbidity and mortality, and reduce costs of treating preventable disease. In addition, good public health policy argues for consistent adoption of vaccine recommendations across all States in order to minimize the potential for transmission of communicable disease.

Comment: One commenter expressed its opinion on the importance of children in separate child health programs receiving all necessary immunizations and of vaccines being incorporated in all benefit packages. The commenter also suggested two ways that States may provide immunizations through their SCHIP programs without opening up the VFC program: (1) a State may add on payments for the provision of immunizations through participating MCEs; or (2) the State may declare that children enrolled under a separate child health program are State vaccine eligible. The State may then purchase the vaccines at the Federal contract price and distribute them to SCHIP providers as it currently does for Medicaid providers. The commenter stated that expenditures under either of these options would be matched by the Federal government at the SCHIP enhanced matching rate and would not count as administrative expenditures under the 10 percent cap. Additionally, the commenter believed that the State should require that plan contracts include provisions that require plans to provide and cover additional expenses for vaccines that are approved and recommended for all children during the life of the contract.

Response: We agree with the commenter that children in separate child health programs should receive all recommended immunizations, as should children in Medicaid expansion and combination programs. Also, regardless of the type of child health insurance program the State chooses, we agree with the suggestion that MCE contracts should provide that the MCEs furnish all vaccines, including new vaccines, recommended during the term of the contract.

However, regardless of whether the State chooses to include such a contract provision, States must furnish vaccines in accordance with the recommendations of the ACIP. States should furnish newly recommended vaccines to all eligible children within 90 days after the recommendation is published in Morbidity and Mortality Weekly Report. This report is available over the Internet at www.cdc.gov/mmwr.

We outlined ways that States could take advantage of the Federal discount contract price for vaccines in a letter dated June 25, 1999 to all State Health Officials. As stated in that letter, expenditures for vaccines will be matched by the Federal government at the enhanced SCHIP matching rate and will not count as expenditures subject to the 10 percent cap on administrative expenditures under section 2105(c)(2) of the Act, regardless of whether the State takes advantage of the Federal discount contracts.

Comment: Many commenters recommended that HCFA reconsider its position on the Vaccines For Children (VFC) program for various reasons. One commenter indicated that in light of national immunization goals not yet having been achieved, HCFA should not consider SCHIP enrolled children to be insured and therefore ineligible for free VFC vaccines. Several commenters expressed that States that have elected to implement separate child health programs are being unfairly penalized for not choosing to expand their Medicaid programs.

One commenter indicated that because the SCHIP statute states absolutely that the legislation creates no entitlement, and because the VFC program defines insurance as benefits to which an individual is entitled, it would appear to be clear that, despite their eligibility for SCHIP, children in separate child health programs are not entitled to insurance and thus should be considered VFC-eligible. One commenter also stated that having seen polio epidemics and iron lung machines, HCFA should be working to reduce barriers that prevent many children from getting vaccinated so that epidemic childhood diseases do not become more prevalent in the United States as they are in other countries. One commenter believed that the interpretation of section 316 of the Public Health Service Act, which is used to support the policy that separate child health programs are not eligible to participate in VFC, is overly strict and does not align with the intent of the Act to insure that children receive necessary immunizations.

Response: We agree with the commenter that the intent of the statute is that all children should receive necessary immunizations, and therefore require at § 457.410(b)(2) that all States with separate child health programs provide coverage for immunizations in accordance with the recommendations of the ACIP. We disagree with the commenters only as to whether the VFC program or SCHIP funds cover the cost of required immunizations. We disagree that the VFC program allows payment for immunizations provided to a child enrolled in a separate child health plan. As explained in a letter to State Health Officials of May 11, 1998, section 1928(b)(2) of the Act defines a “Federally vaccine-eligible child” or a child who is entitled to free Federal vaccines under the VFC program, as “a Medicaid-eligible child, * * * a child who is not insured, * * * a child who is (1)administered a qualified pediatric vaccine by a Federally-qualified health center * * * or a rural health clinic * * * and (2) is not insured with respect to the vaccine, [or] a child who is an Indian * * * ” The law further defines the term “insured” as a child “ * * * enrolled under, and entitled to benefits under, a health insurance policy or plan, including a group health plan, a prepaid health plan, or an employee welfare benefit plan under the Employee Retirement Income Security Act of 1974 * * * ” The distinction between Medicaid coverage and other coverage is created by the VFC statute. Under the SCHIP statute, it is clear that children who are enrolled in a separate child health program must not be Medicaid-eligible, as explained in § 457.310(b)(2) of these regulations. They are enrolled under, and entitled to benefits under, a health insurance policy or plan within the definition in section 1928 (b)(2)(B)(ii), as explained above, and their insurance covers the cost of vaccines. Although there is no Federal entitlement to SCHIP coverage, a child who is enrolled in a SCHIP-funded plan is “entitled” to coverage under that plan just as a child enrolled under a group health plan is “entitled” to coverage under the group health plan. Unless they are Indians, children enrolled in SCHIP are not Federally vaccine-eligible under current law. Therefore, the Secretary cannot reconsider her decision on this matter without a change in the law that would define a child enrolled in a separate child health program as a Federally vaccine-eligible child.

Comment: One commenter indicated that it appears that the exclusion of SCHIP children from the VFC program would cause the SCHIP program to be less cost effective than the Medicaid program. The commenter asked if this policy means that States may use this provision as a cost offset in discussions of the revenue neutrality of the SCHIP program design. The Federal government, by design, assures that the SCHIP program will be more expensive in that it must pay for a service that is free under Medicaid.

Response: We do not understand the intent of this comment, as the concept of budget neutrality does not apply to the SCHIP program design. While immunizations are required to becovered under a separate child health plan, States have discretion to determine what other services will be provided under their State plans, and the amount, scope, and duration of those services.

Comment: One commenter noted that it is crucial that any expansion of health care services in State plans include coverage for essential oral health care benefits. Historically, the number of dentists participating in State Medicaid programs is low. This low participation has prevented most poor children from developing good oral hygiene habits. SCHIP allows States to include oral health care services in their State plans and the commenter urged HCFA to consider this as an important component of increasing the overall health of America's rural children as the agency reviews State plans.

Response: We agree with the commenter that oral health is an integral part of the overall health of children and have engaged in a serious effort to promote oral health, as described earlier in a response to comments on this subpart. However, we do not have the statutory authority to require that States provide any specific services under their SCHIP plans other than those required under sections 2102(a)(7)(A) and 2103(c) of the Act. Although we do not have the authority to require the inclusion of these services, because of the importance of oral health services for children, we have included in the definition of well-baby and well-child care, for purposes of cost-sharing restrictions at § 457.520(b)(5), routine and preventive and diagnostic dental services. Accordingly, a separate child health plan may not impose copayments, deductibles, coinsurance or other cost-sharing for these services. Nonetheless, all but two States with separate child health programs have opted to provide coverage for some type of oral health services.

Comment: One commenter recommended that the regulation clarify that children enrolled under a Medicaid expansion program are entitled to all medically necessary services to the same extent as under the Medicaid EPSDT service and that the services for these children would not be considered a State option.

Response: The regulation indicates in § 457.401(c) that the information in this subpart does not apply to Medicaid expansion programs. Therefore, because this subpart addresses only provisions regarding separate children's health insurance programs, we have not added additional language to the regulation text to indicate that children enrolled under Medicaid expansion programs are eligible for Medicaid's EPSDT services. However, as we have made clear in the preamble to the proposed regulation and in other guidance, all Medicaid benefit rules, including rules requiring EPSDT services, apply fully to children enrolled in Medicaid expansion programs.

Comment: One commenter noted that the Medicaid program includes coverage for children with serious and severe mental illnesses. The commenter urged HCFA to collaborate with those States opting to develop separate child health programs to provide health coverage for the same level of treatment and service currently provided by Medicaid. Another commenter noted the importance of behavioral health as an integral part of a child's overall well being. According to this commenter, while rural families and children suffer mental disorders similar to those suffered by their urban counterparts, rural residents are less likely to receive treatment in part because of the extreme lack of behavioral health professionals in rural communities. The commenter strongly supported inclusion of coverage for mental health services in the State plans for the SCHIP program.

Response: We agree that mental health is an integral part of the overall health of a child and we urge States to consider providing these services. However, a requirement that States include any specific services in their State plans other than those required under 2102(a)(7)(A) and 2103(c) of the Act and specified under § 457.410(b) would be inconsistent with title XXI.

Comment: One commenter asked why the discussion of § 457.410(b) in the preamble to the proposed regulation about offering different health benefits coverage for children with special needs refers only to children with physical disabilities, and not mental disabilities. Such children may be encompassed within the category of special needs, but the additional listing only of physical disabilities gives the false impression that disability cannot be mental as well.

Response: We did not intend to exclude any type of illness, physical or mental, by using the example of children with physical disabilities in discussing the States' option to offer different health benefits coverage. The preamble noted that States can have more than one benefit package that meets the requirements of the subpart, including one designed for children with special needs or physical disabilities. We were simply giving one example of a population to which States may want to consider offering additional services or a special package of services and did not mean to offer the example as the only option. States should consider the needs of children with mental disabilities as they consider whether to adopt benefit packages designed specifically for children with special needs.

Comment: One commenter supported the preamble language to proposed § 457.410, which indicates that States can include in their comprehensive health benefits package “supplemental services for children with special needs or physical disabilities” and alternatively may offer multiple benefit packages. Such an approach permits States to expand services to children with special health care needs without regard to the 10 percent cap on Federally-matchable expenditures “for other than the comprehensive services packages.” The commenter supported this approach to increasing States' ability to help such children.

However, numerous commenters were concerned with this language in the preamble to proposed § 457.410. Several commenters expressed concern about the language in the proposed rule stating that if a State offers a supplemental package of limited services for children with special health care needs that is not part of the comprehensive coverage required by the regulation, then expenditures for those extra services would be counted against the 10 percent cap on administrative expenses under section 2105(c)(2) of the Act. They noted that a number of States have implemented SCHIP with supplemental benefits packages, or “wrap-around packages”, for coverage of services for eligible children with special health care needs and that this is an important, appropriate and beneficial strategy for the provision of needed health care services for children. They indicated that requiring that expenditures for services for children with special health care needs count against the 10 percent cap would encourage States to limit the services that are offered to these children, which could affect their overall health and well being. The commenters argued very strongly that services for children with special health care needs that are provided through an additional limited benefits package should not be counted against the 10 percent cap, and that making them subject to the cap has the potential to discourage the development of creative benefit packages for children with special needs.

Two commenters questioned whether the Department intended to indicate that such initiatives are subject to the 10 percent administrative cap as section 2105(a)(2) makes no mention of special needs. The commenters recommendedthat the preamble be modified by dropping the reference to special needs since this reference may be misconstrued when States are designing and implementing certain benefit packages for special needs children. The commenters indicated that the statute contemplates that there are permissible health initiatives which would be subject to the 10 percent cap and suggested that this section of the preamble be written to identify the types of initiatives subject to the limitation without calling into question those benefits packages for children not subject to the 10 percent cap.

One commenter cautioned States about the manner in which they define children with special health care needs. The commenter provided suggested language that States should be encouraged to use to define children with special health care needs.

One commenter believed that the explanation of required coverage in the preamble to the proposed rule forces States either to provide a comprehensive benefit package that is above and beyond the needs of the “average” child in order to ensure that the needs of special needs children are met, or to put administrative dollars at risk. By providing such a comprehensive benefit package, the capitated rate paid to health plans to pay for such services will significantly increase.

One commenter also noted that while the rules permit separate packages of services consistent with the ADA, the 10 percent cap is troubling and it is unclear what the potential impact will be or if this could penalize children and their families in unexpected ways.

Response: Unfortunately, the language in the preamble to the proposed rule about the application of the 10 percent administrative cap in connection with supplemental services for children with special needs caused much confusion to commenters. We will attempt to clarify below.

Under section 2105(a)(1), States may receive enhanced FMAP for expenditures for child health assistance for targeted low-income children provided in the form of health benefits coverage that meets the requirements of section 2103 of the Act. Under section 2105(a)(2) States may receive payment of a federal share of State expenditures for other items but expenditures for these other items are subject to the 10 percent administrative cap under section 2105(c)(2). A State has two options for providing more health benefits coverage to special needs children under which the expenditures for the coverage are not subject to the 10 percent cap on administrative expenditures. The first option would be for the State to have a separate eligibility group for the identified special needs children with a larger health benefits package than for other eligibility groups. The State would have to design the eligibility group without violating the statutory requirement under section 2102(b)(1)(a) of the Act that the eligibility standards “not discriminate on the basis of diagnosis.” The second option would be for the State to retain the general eligibility group that includes all children and include in the health benefits coverage package coverage for services needed by special needs children. The package could include limitations for coverage on these services (consistent with other benefits requirements) to ensure that they would be available primarily to special needs children. Under either option, the special needs coverage is part of an overall health benefits coverage package that is consistent with section 2103 of the Act and § 457.410 of the final regulation.

One key aspect of section 2105(a)(2) is that SCHIP funds can be used for health services initiatives for targeted low-income children as well as other low-income children. With respect to the suggestion that we include some examples of public health initiatives that would be subject to the 10 percent cap, we are including the following examples, some of which were proposed by one State: (1) access to mental health services for low-income children in the Juvenile Court System; (2) health care outreach and services for homeless children and adolescents; (3) mental health services for low-income children with special needs; (4) dental care for low-income children and their families; (5) health care services for migrant children; and (6) an immunization project for low-income children who are not enrolled in Medicaid or SCHIP. As we indicated, these are just a few examples for use of title XXI funds for public health initiatives as authorized by section 2105(a)(2) of the Act. States are free to develop and propose initiatives which are specific to the needs of their population.

Comment: One commenter noted that it was pleased that we have included a reference to Bright Futures in the proposed rule but encouraged that we use the term “well-adolescent” whenever we refer to “well-child” and the term “age” when offering examples of diverse populations.

Response: Under the definition of “child” set forth in section 2110(c)(1) of the Act, and implemented in § 457.10 of this final regulation, “child” is an “individual under the age of 19.” An adolescent clearly fits within this definition of child, and therefore we have not accepted the commenter's suggestion to use the term “well-adolescent” whenever we refer to well-child care. In addition, as we explained above, we did not intend to exclude any particular group or condition in describing a special population that States may want to consider offering additional services or a special package of services. Therefore, we have not added “age” to the example we used in the preamble.

Comment: One commenter indicated that there are various ways for separate child health programs to make health benefits coverage available to enrolled children. States may use direct, fee-for-service coverage or can operate as primary care case managers. Separate child health programs can also buy benchmark or benchmark-equivalent coverage provided through an MCE. The commenter went on to say that what is listed as a class of covered benefits in the State plan may not be precisely what is covered if the State chooses to offer coverage solely through a benchmark or benchmark-equivalent package that is purchased from a participating insurer or MCE. Furthermore, the insurer or MCE may apply limits to coverage that would not apply if the coverage were obtained directly through the State-based plan. Finally, the proposed rules on coverage do not require any particular standard for the measurement of medical necessity for children, either by the State or by benchmark insurers.

According to the commenter, because the benchmark plans may differ from the State comprehensive package and no specific medical necessity standard is required for separate child health programs, the issue of disclosure of coverage and coverage limitations becomes important. Both providers and families will need to have clear, understandable materials and information regarding what is and is not covered, as well as the limitations that apply to covered benefits. The commenter cautioned that benchmark plans may not be appropriately designed for children; for example, the plan may provide coverage for speech therapy after a stroke but no coverage for speech therapy to address developmental delays. There is nothing in the proposed rule that requires benchmark plans to be designed to meet the specific health needs of children.

Response: In order for a State plan to be approved, the State must indicate what type of health benefits coverage it is electing to provide. The State must make available to enrollees the fullcoverage package defined in its State plan, and may not permit contractors to restrict that coverage. While neither the State nor a contractor is required to furnish medically unnecessary services, they cannot alter the basic coverage package from that specified in the State plan.

Because SCHIP is targeted for children under the age of 19, States must ensure that the health benefits coverage it elects to provide is appropriate for the population being served. The statute addresses the issue of appropriateness of coverage through the coverage requirements at section 2103 of the Act, which sets forth the required scope of health insurance coverage under a separate child health program. In addition, based on the authority of section 2102(a)(7) of the Act, we have required coverage for well-baby and well-child care, immunizations and emergency services. Finally, if a State elects to use benchmark-equivalent coverage, it must cover specific services listed at section 2103(c)(1) of the Act and be actuarially equivalent for additional services covered under one of the benchmark benefit packages. While we have not defined medical necessity for purposes of separate child health programs, we believe that the requirements of the statute and final regulations ensure the appropriateness of coverage for children in separate child health programs.

With respect to the commenter's concerns regarding the availability of understandable materials, we refer the commenter to the requirements at § 457.110(b) and § 457.525 which discuss the requirements for making certain information available and for information on the public schedule for cost sharing.

Comment: Several commenters agreed with HCFA's suggestion in the preamble to proposed § 457.410 that SCHIP programs use the AAP guidelines and/or Bright Futures periodicity schedules. However, they did not agree with HCFA's reasoning for not requiring States to adopt this definition of well-baby and well-child for benefit coverage. One commenter indicated that Medicaid guarantees children coverage of medically necessary services through EPSDT, while separate child health programs do not provide the same guarantee. It is therefore more critical and appropriate for HCFA to place specific requirements on the provision of services because there is no underlying entitlement, and HCFA should establish an appropriate floor. Another commenter indicated that because Medicaid uses the EPSDT standard for its schedule of periodicity, the schedule should be included for SCHIP coverage to be consistent and allow parity. Rather than merely recommending periodicity schedules, HCFA should require that an endorsed professional standard be adopted by SCHIP programs. Allowing States to devise their own schedules could leave children in different States with widely different coverage under SCHIP.

Response: For a number of reasons, we are not requiring States to use for coverage and other purposes the definition of well-baby and well-child care that is required for purposes of cost sharing. Specifically, HCFA wanted to assure States the flexibility accorded them under the statute in developing their SCHIP benefit packages, including their well-baby and well-child care packages. In addition, there are several expert groups that have developed professional standards for the delivery of well-baby and well-child care. These standards include those developed by the AAP, AAPD and the Bright Futures standards. HCFA has not endorsed any particular professional standard for well-baby and well-child care for Medicaid and we did not feel we should impose a more stringent standard on SCHIP plans. We have included a definition of well-baby and well-child care for purposes of cost sharing because Congress established basic rules for cost sharing that must be applied on a consistent basis across States.

The commenter is correct that under the Medicaid program, EPSDT services are mandatory for most Medicaid eligible children under the age of 21. However, the SCHIP statute did not require this comprehensive service package for children in separate child health programs but rather gave States the flexibility to design their own benefit packages within certain parameters.

With respect to the use of a specific periodicity schedule, the commenter is incorrect that EPSDT services require any specific periodicity schedule. HCFA cannot, by law, require States to use any particular periodicity schedule for the delivery of EPSDT services under Medicaid. The EPSDT statute at section 1905(r) specifies that each State must develop its own periodicity schedule for screening, vision, hearing and dental services after appropriate consultations with medical and dental organizations involved in child health care. In the proposed rule, we suggested that States use one of the professional standards already developed in determining their well-baby and well-child care benefit packages; however, we have declined to require the use of a specific schedule. There are several professional standards that are acceptable for States to adopt. In fact, many States have adopted one of those standards for use in their EPSDT programs also. This policy does present the possibility, as the commenter suggests, that children may be treated differently in different States. However, this is allowable under title XXI.

Comment: One commenter believed that States should be able to retain discretion to define well-baby and well-child care more broadly than § 457.520 and that HCFA should require States to follow the AAP and Bright Futures periodicity schedules in both Medicaid and SCHIP programs. In particular, many States have not yet adopted a periodicity schedule providing for annual health assessments for adolescents, even though there is consensus among the professional community that adolescents should receive annual assessments.

Response: If a State chooses to define well-baby and well-child care more broadly than defined in § 457.520 for cost sharing purposes in order to limit cost sharing for a broader range of services, the State is free to do so. It is true that some States have not adopted periodicity schedules to allow for annual assessment of adolescents under their Medicaid program. While both programs allow for that flexibility in adopting periodicity schedules, HCFA encourages States to ensure that their periodicity schedules reflect current professional standards.

Comment: One commenter recommended that the AMA's Guidelines for Adolescent Preventive Services (GAPS) be added to the list of appropriate standards for States to consider.

Response: We agree that GAPS is an appropriate standard for States to use in defining well-child care periodicity schedules for adolescents and recommend that States consider this standard as well.

Comment: One commenter reiterated that the preamble language indicates that well-baby and well-child care includes health care for adolescents and is subject to the cost-sharing prohibitions, but is ambiguous as to whether a State has to provide coverage for these services or merely apply the cost-sharing prohibitions to those services that they cover. The commenter believed that States should be required to provide such coverage. The commenter also urged HCFA to add language to the preamble encouraging States to consider the special problems that affect adolescents (for example, eating disorders) when defining special needs.

Response: We appreciate the commenter's concern about adolescents. States are required to provide coverage for well-baby and well-child care services under any separate child health plan but may specifically define those services as they choose. We note that we have revised § 457.410(b)(1) to provide that the State must obtain well-baby and well-child care services as defined by the coverage for the State. Cost sharing is not allowed for any services covered under a separate child health program that are included in the definition of well-baby and well-child care at § 457.520. We have not included language encouraging States to consider special problems that affect adolescents when defining special needs. However, we urge States to consider the special needs of the population being served by the separate child health plan.

Comment: One commenter recommended § 475.410(b) be deleted because the statute provides States with the flexibility to adopt a benchmark plan or to develop an actuarially equivalent benefit package.

Response: We have not adopted this suggestion. The commenter correctly notes that the SCHIP statute provides States with flexibility to adopt benchmark health benefits coverage or actuarially equivalent benefit-equivalent health benefits coverage when designing their programs. However, in accordance with section 2102(a)(7), § 457.410(b) ensures that enrollees in separate child health programs receive coverage for certain basic services.

4. Benchmark Health Benefits Coverage (§ 457.420)

Section 2103(b) of the Act sets forth the benchmark health benefits coverage from which a State may choose in accordance with section 2103(a)(1) of the Act. We proposed to implement these statutory provisions at § 457.420. We proposed to define benchmark health benefits coverage as health benefits coverage that is substantially equal to the health benefits coverage in one of the following benefit packages:

• The Federal Employee Health Benefits Program (FEHBP) Blue Cross/Blue Shield Standard Option Service Benefit Plan with Preferred Provider arrangements;

• A health benefits plan that the State offers and makes generally available to its own employees; or

• A plan offered by a Health Maintenance Organization (HMO) that has the largest insured commercial, non-Medicaid enrollment of any such plan in the State.

We discussed each option for benchmark health benefits coverage in detail in the preamble of the proposed rule. We noted that when a State chooses to increase, decrease, or substitute coverage available under its approved State plan, a State must submit a State plan amendment for approval if the change in benefits is intended to conform the separate State benefit package to the benchmark coverage. But if the change in benefits causes the State offered benefits to differ from the benchmark coverage, then the benefits must be reclassified as benchmark equivalent or one of the other benefit package options.

We also noted that section 2103(a)(1) of the Act provides that benchmark coverage must be “equivalent” to the benefits coverage in a reference benchmark benefit package. We stated that we would interpret this language to mean that coverage must be “substantially equal” to benchmark coverage. That is, benchmark coverage offered under a separate child health plan should differ from benchmark coverage available in the State only to the extent that the State must add coverage to the benchmark coverage, such as coverage for immunizations, to meet the requirements of title XXI.

Comment: Numerous commenters had requested clarification of when a State plan amendment is required if a benchmark plan changes. These commenters interpreted the language at § 457.20 of the proposed rule to mean that if the benchmark plan the State is using changes, we would not require a State plan amendment; whereas if the State chooses to change the coverage under its State plan to conform to the benchmark plan's changes, a plan amendment would be required. The commenters asked why changes to a State plan that simply parallel changes in a benchmark plan require an amendment given that benchmark plans are supposed to be the standard of adequacy in terms of SCHIP benefits.

Several commenters believed the preamble should be clarified to indicate that an amendment is only required when the SCHIP benefits package is altered.

Response: The approved State plan must accurately reflect the health benefits package being offered. A State must submit a State plan amendment to reflect any change in the health benefits coverage regardless of whether the change is made to conform to changes made in the benchmark plan to which the State's health benefits coverage is supposed to be equivalent, or whether the change is made to select a different health benefits coverage option. See subpart A for further discussion of when a State must submit a State plan amendment.

Comment: One commenter felt that States should not be allowed to amend their State plans to make them less comprehensive in terms of coverage or the benefits they provide. According to this commenter, State plans should only be amended to improve coverage, not to diminish it. A basic package of benefits should be required. In other words, certain benefits should be Federal entitlements. States then have the flexibility to improve that benefit package or to offer only what is Federally required.

Response: States are responsible for determining the health benefits coverage under a separate child health program subject to the standards set by title XXI and implemented in this final regulation. States have the option of choosing from the types of coverage specified in § 457.410 of the proposed rule and in accordance with section 2103 of the Act. States may amend their State plans to decrease the coverage provided as long as all of the requirements of §§ 457.410-457.490 are met, depending on the type of coverage approved in the State plan. The only services required to be covered under every separate child health program are well-baby and well-child care, immunizations according the ACIP schedule, and emergency services as defined in § 457.10.

Comment: One commenter was concerned that a State that is using the benchmark benefit package need not submit an amendment when the benchmark changes and believed this means that if the plan includes mental health services that are subsequently dropped, the State need not file a State plan amendment.

Response: If a State has elected to provide benchmark health benefits coverage that is substantially equal to coverage under a certain benefit plan, and that plan drops coverage for mental health services, the State has two options. First, the State may continue to provide coverage for mental health services as described in its approved State plan, even though the benchmark plan has discontinued this coverage. No amendment is necessary in this case. Alternatively, if the State wants to discontinue providing mental health services under its State plan, it must submit a State plan amendment to reflect the dropped coverage.

Comment: One commenter supported the preamble language on benchmark coverage being able to differ from coverage under a benchmark plan only as necessary to meet other requirements of title XXI.

Response: We appreciate the support. The commenter is correct that benchmark health benefits coverage under § 457.420 may only differ from coverage under the benchmark plan as necessary to meet title XXI requirements. For example, as noted earlier, a State may need to add coverage for immunizations in order to comply with the requirement that they be covered under every separate child health plan.

Comment: One commenter stated that the preamble indicates in discussing § 457.420(c) that “in calculating commercial enrollment, neither Medicaid nor public agency enrollees will be counted.” The commenter suggested that all public agency enrollees be counted as commercial enrollees when they are enrolled in a plan offered by a private sector HMO. If it is appropriate to count Federal employees as commercial enrollees, it should be just as appropriate to count any other public employees who are enrolled in the plan. Another commenter recommended that § 457.420(c) be modified to be consistent with the preamble to exclude public agency enrollees. The proposed regulation only excludes Medicaid enrollees.

Response: We agree with the comments noting that the preamble and regulation text were not consistent with respect to the calculation of commercial enrollment. We also recognize, as noted by one of the commenters, that the preamble statement that Federal employees are considered commercial enrollees, but public agency enrollees are not, merits further consideration.

After further consideration, we have decided to retain the regulatory language as proposed, that is, the health insurance coverage plan that is offered through an HMO and has the largest insured commercial, non-Medicaid enrollment in the State. Public agency employees, as well as Federal employees, may be considered enrollees for purposes of calculating commercial enrollment.

5. Benchmark-Equivalent Health Benefits Coverage (§ 457.430)

Section 2103(a)(2) of the Act provides that a State may opt to provide a benefits package with an aggregate actuarial value that is at least equal to the value of one of the benchmark benefit packages. In accordance with the statute, we proposed at § 457.430 that the benchmark-equivalent coverage must have an aggregate actuarial value, determined in accordance with proposed § 457.431, that is at least actuarially equivalent to coverage under one of the benchmark packages outlined in § 457.420.

In § 457.430 we set forth the proposed coverage requirements for States selecting the benchmark-equivalent coverage option. Under the authority of section 2103(c)(1), we proposed that a benchmark equivalent plan must include coverage for inpatient and outpatient hospital services, physicians' surgical and medical services, laboratory and x-ray services, well-baby and well-child care, including age-appropriate immunizations provided in accordance with the recommendations of ACIP.

Under the authority of section 2110(a) of the Act as implemented at proposed § 457.402, a State may provide coverage for a wide range of services. Under the authority of section 2103(a)(2)(C), we proposed that if the State provides coverage for prescription drugs, mental health services, vision services, or hearing services, the coverage for these services must have an actuarial value that is equal to at least 75 percent of the actuarial value of the coverage of that category of service in the benchmark benefit package. In addition, we proposed that if the benchmark plan does not cover one of the above additional categories of services, then the benchmark-equivalent coverage package may, but is not required to, include coverage for that category of service. A State may provide services listed in § 457.402 other than the services listed in § 457.430(b) without meeting the 75 percent actuarial value test.

Comment: Two commenters believed § 457.430 is ambiguous, confusing and potentially troublesome and allows for a court to read some distinction into the redundant provisions at 457.410(b)(1) and (2) and 457.430(b)(4) about well-baby and well-child care and immunizations applying only to benchmark-equivalent coverage. To avoid such a result, the commenter suggested that HCFA strike § 457.430(b)(4) and revise subsection (b) to read as follows: “(b) Required services. Benchmark equivalent health benefits coverage must include, in addition to the services described in § 457.410(b), coverage for the following categories of service.”

Response: We have accepted the commenter's suggestion to revise proposed § 457.430. We have also revised § 457.410((b)(2) of the regulation text to add the phrase “age appropriate” to immunizations in order to make it consistent with proposed § 457.430(b)(4).

Comment: One commenter is concerned because mental health services do not fall within the scope of required services under SCHIP. The commenter is particularly concerned that children in a State that initially use a Medicaid-expansion program and then move to a separate child health program will lose the EPSDT safety net for mental health services.

Response: While children receiving SCHIP services under a Medicaid-expansion program are required to be provided the full complement of EPSDT services, there is no such requirement under a separate child health program. It is true that some children with coverage for mental health services under a Medicaid expansion could lose that coverage if the State decided to switch to a separate child health program. Those children, however, would be in no worse position than if the State had originally elected a separate child health program. We have no basis to limit State flexibility by mandating benefits beyond those specifically required by the statute, however, we encourage States electing to shift from a Medicaid expansion program to a separate child health program or combination program to retain a comprehensive benefits package that is similar to the Medicaid expansion benefit package to help ensure that children do not experience a significant disruption in care.

Comment: One commenter believed HCFA should promulgate minimum benefits standards for benchmark-equivalent coverage. They noted that HCFA indicated that it has chosen not to propose minimum standards for basic sets of services because a greatly reduced benefits schedule would be unlikely to meet actuarial value requirements. However, the commenter argues that because SCHIP plans may involve much lower cost-sharing requirements than commercial plans, a SCHIP benefits package can offer far fewer services than a benchmark commercial plan and still pass actuarial muster. Accordingly, the commenter respectfully urged the Secretary to revisit this decision and promulgate minimum benefits standards for benchmark-equivalent coverage.

Response: We have considered the issue raised by the commenter but have declined to revise the regulation to set minimum standards at this time. The actuarial value requirements should ensure that the benefits in an actuarial-equivalent benefit package that will not fall below levels intended by title XXI. In fact, experience has shown that States that have chosen to provide benchmark-equivalent health benefits coverage provide coverage that looks very similarto coverage under other health benefits coverage options.

Comment: One commenter recommended deleting § 457.430(c)(2) because benchmark-equivalent coverage should not be required to include coverage for specific services just because they are covered in the benchmark package. According to this commenter, the intent of equivalent packages is to allow a State the flexibility to design coverage that meets the needs of children in the state.

Response: The language in § 457.430(c)(2) mirrors section 2103(a)(2)(C) of the Act. Therefore, we have not adopted the commenter's suggestion to delete this material.

6. Actuarial Report for Benchmark-Equivalent Coverage (§ 457.431)

In accordance with section 2103(c)(4) of the Act, at § 457.431 we proposed to require a State, as a condition of approval of benchmark-equivalent coverage, to provide an actuarial report, with an actuarial opinion that the benchmark-equivalent coverage meets the actuarial requirements of § 457.430. We also proposed that the actuarial report must specify the benchmark coverage used for comparison.

The actuarial opinion must meet all the provisions of the statute. We proposed that the report must explicitly state the following information:

• The actuary issuing the opinion is a member of the American Academy of Actuaries (and meets Academy standards for issuing such an opinion).

• The actuary used generally accepted actuarial principles and methodologies of the American Academy of Actuaries, standard utilization and price factors, and a standardized population representative of privately insured children of the age of those expected to be covered under the State plan.

• The same principles and factors were used in analyzing both the proposed benchmark-equivalent coverage and the benchmark coverage, without taking into account differences in coverage based on the method of delivery or means of cost control or utilization used.

• The report should also state if the analysis took into account the State's ability to reduce benefits because of the increase in actuarial value due to limitations on cost sharing in SCHIP.

Finally, we proposed that the State must provide sufficient detail to explain the basis of the methodologies used to estimate the actuarial value or, if requested by HCFA, to replicate the State's result.

Comment: We received two comments on this section. One commenter supported the requirement for a set of comprehensive actuarial reports. The second commenter suggested that the requirement for proof of actuarial equivalence of the benefits will be too costly. The commenter noted that insurance industry and State regulatory departments have developed methods of comparing coverage that would be significantly more cost effective and equally as useful for the program as an actuarial study.

Response: We appreciate the support of the first commenter. In response to the suggestion of the second commenter, the actuarial report requirements contained in this section of the regulation text are basically drawn from the section 2103(c)(4) of the Act. Therefore, we have chosen not to alter the requirements in the regulation to allow an alternative approach to benchmark equivalent coverage. However, as discussed under § 457.450, we are willing to entertain other suggestions for Secretary-approved coverage. We will consider States' specific proposals for alternatives to actuarial analysis under the provisions of § 457.450.

7. Existing Comprehensive State-Based Coverage (§ 457.440)

In accordance with section 2103(d) of the Act, at § 457.440 we proposed that existing comprehensive State-based health benefits coverage must include coverage of a range of benefits, be administered or overseen by the State and receive funds from the State, be offered in the State of New York, Florida, or Pennsylvania, and have been offered as of August 5, 1997. In essence, Congress deemed the existing State-based health benefit packages of three States as meeting the requirements of section 2103 of the Act. We noted that these States still need to meet other requirements of title XXI, including requirements relating to cost sharing, such as copayments, deductibles and premiums, as specified in subpart E of this final rule.

We also proposed that the States (Florida, New York, and Pennsylvania) may modify their existing, comprehensive, State-based program under certain conditions. First, the program must continue to offer a range of benefits. Second, the modification must not reduce the actuarial value of the coverage available under the program below either the actuarial value of the coverage as of August 5, 1997 or the actuarial value of a benchmark benefit package. A State must submit an actuarial report when it amends its existing State-based coverage.

We did not receive any comments on this section. Therefore, we are implementing these provisions as set forth in the proposed rule except that we have added language to the regulation to clarify that a State must submit an actuarial report when it amends its existing State-based coverage.

8. Secretary-Approved Coverage (§ 457.450)

Section 2103(a)(4) of the Act defines Secretary-approved coverage as any other health benefits coverage that provides appropriate coverage for the population of targeted low-income children to be covered by the program. In proposed § 457.450 we set forth the option of providing health benefits coverage under the Secretary-approved health benefits coverage option.

We proposed that the following coverage be recognized as Secretary-approved coverage under a separate child health program:

• Coverage that is the same as the coverage provided under a State's Medicaid benefit package as described in the existing Medicaid State plan.

• Comprehensive coverage offered under a § 1115 waiver that either includes coverage for the full EPSDT benefit or that the State has extended to the entire Medicaid population in the State.

• Coverage that includes benchmark coverage, as specified in § 457.420, plus additional coverage. Under this option, the State must clearly demonstrate that it provides all the benchmark coverage, including all coverage required under title XXI, but may also provide additional services.

• Coverage, including coverage under a group health plan, purchased by the State that the State demonstrates to be substantially equal to coverage under one of the benchmark plans specified in § 457.420, through use of a benefit-by-benefit comparison of the coverage. Under this option, if coverage for just one benefit does not meet or exceed the coverage for that benefit under the benchmark, the State must provide an actuarial analysis as described in § 457.431 to determine actuarial equivalence.

While we listed these four options as permissible types of Secretarial-approved coverage, we solicited comments on other specific examples of coverage packages that States have developed, or might wish to develop, to meet the Title XXI requirements. We also proposed that no actuarial analysis is required for Secretary-approvedcoverage if the State can show that the proposed benefit package meets or exceeds the benchmark coverage. While the four options we listed meet or exceed the benchmark package, it is possible that a State may develop a Secretary-approved coverage proposal that may require an actuarial analysis.

Comment: One commenter argued that “Secretary-approved coverage” should provide HCFA with greater flexibility to approve SCHIP State plans. The commenter points 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 target population.

The commenter recommended that the regulations 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 States by title XXI.

Response: The list of four examples included in the regulation text at § 457.450 was not meant to be an exhaustive list of examples of Secretary-approved coverage. The regulations text states that Secretary-approved coverage “may include” one of these options. We solicited additional examples of types of coverage that might qualify under this option but we did not receive any specific examples. We remain open to reviewing other proposals for Secretary-approved coverage.

Comment: One commenter noted that a number of States are exploring buy-in programs where SCHIP funds will be used to subsidize coverage for the uninsured under group health plans. A significant issue for States is how to design programs that can meet HCFA's SCHIP benefit requirements. The preamble to the proposed rule states that if any benefit under an employer plan does not meet or exceed that of a benchmark plan provided under title XXI, based on a benefit-to-benefit comparison, the State must document that the two benefit packages are actuarially equivalent. However, providing such comparisons would likely be costly and burdensome to implement on an employer-by-employer basis. The commenter strongly encouraged HCFA to modify the preamble to provide for maximum State flexibility in the area of benefit certification under buy-in programs. HCFA could provide such flexibility by allowing States more flexibility to designate benefit packages that meet the benchmark standard or to use simple benefit checklists.

Response: We recognize the administrative burden involved in determining whether employer plans meet benefit requirements for separate child health programs, and we agree that documenting the actuarial equivalence of a plan or using benefit side-by-side comparisons may be costly and burdensome. Nonetheless, employer plans through which States wish to offer coverage under a separate child health program must meet requirements for either benchmark coverage, benchmark-equivalent coverage, or Secretary-approved coverage in order to comply with section 2103 of the Act. However, we are open to, and encourage States to propose other options under the “Secretary-approved” category.

Comment: Two commenters recommended that proposed § 457.450 should explicitly reference Medicaid benefits for children rather than permit States to furnish SCHIP children with Medicaid benefits for adults without any actuarial analysis showing comparability to standard commercial benefits. Specifically, paragraphs (a) and (b) should be consolidated and revised to read: “(a) Coverage that is the same as the coverage for children provided under the Medicaid State plan.”

Response: While we have not adopted the exact language and consolidation recommended by the commenter, we have revised § 457.450(a) to specify that coverage should be the same as that offered to children under the Medicaid State plan.

Comment: One commenter believed the proposed rule should be amended to eliminate the use of a benefit-by-benefit comparison for determining whether coverage provided through premium assistance under a group health plan is approvable. This provision appears to require benefit-by-benefit comparison for demonstrating that group health plans meet or exceed coverage requirements. This is a more rigorous test than that required for benchmark equivalent coverage purchased directly by States. Premium assisted group health plan coverage should be held to no more than the requirements for benchmark equivalent coverage.

The commenter noted that their State experience has shown that children are more likely to be insured if their parents are insured and that parents prefer to cover their entire family under the same plan. HCFA's imposition of barriers to the use of SCHIP programs to support group health coverage is a misguided attempt to address substitution of coverage. States should be given as much flexibility as possible to test different approaches, including buy-in to employer sponsored plans, for increasing creditable coverage for uninsured children. HCFA should not add any restrictions to those already established by law in title XXI.

Response: We did not intend to impose additional restrictions on States wishing to utilize premium assistance programs in SCHIP. The benefit-by-benefit comparison was developed in response to States who wanted to provide premium assistance through employer sponsored insurance but were concerned about the cost of performing the actuarial analysis required by the statute for each participating employer plan. Therefore, we proposed that States may compare each benefit to the benefits in the benchmark plan as a way of providing States with a simplified and lower cost option to the actuarial analysis. However, given the statutory requirement for actuarial equivalence we still require that States perform an actuarial analysis if one benefit is lower than the level specified in the benchmark plan.

9. Prohibited Coverage (§ 457.470)

In accordance with section 2103(c)(5) of the Act, we proposed at § 457.470 that a State is not required to provide health benefits coverage under the plan for an item or service for which payment is prohibited under title XXI even if any benchmark package includes coverage for that item or service. We did not receive any comments on this section. Therefore, we are implementing these provisions as set forth in the proposed rule.

10. Limitations on Coverage: Abortions (§ 457.475)

This section implements sections 2105(c)(1) and (c)(7) of the Act, which set limitations on payment for abortion services under SCHIP. At § 457.475, we proposed that FFP is not available in expenditures for an abortion, or in expenditures for the purchase of health benefits coverage that includes coverage of abortion services, unless the abortion is necessary to save the life of the mother or the abortion is performed to terminate a pregnancy resulting from an act of rape or incest.

Additionally, we proposed that FFP is not available to a State in expenditures of any amount under its title XXI plan to assist in the purchase, in whole or in part, of health benefits coverage that includes coverage of abortions otherthan to save the life of the mother or resulting from an act of rape or incest.

We also proposed that, if a State wishes to have managed care entities provide abortions in addition to those specified above, those abortions must be provided pursuant to a separate contract using non-Federal funds. A State may not set aside a portion of the capitated rate to be paid with State-only funds, or append riders, attachments, or addenda to existing contracts to separate the additional abortion services from the other services covered by the contract. The proposed regulation also specified that this requirement should not be construed as restricting the ability of any managed care provider to offer abortion coverage or the ability of a State or locality to contract separately with a managed care provider for additional abortion coverage using State or local funds.

Comment: One commenter recommended that abortions be covered under any circumstances.

Response: Federal financial participation is available in expenditures for abortions in an SCHIP program only as specifically authorized by Congress in the statute. Section 2105(c)(1) of the Act limits funding of abortions to funding for those abortions necessary to save the life of the mother or to terminate pregnancies resulting from rape or incest.

Comment: We received many comments on the requirement that States that wish to cover abortions other than those allowed under the statute use separate contracts with managed care organizations to ensure that no Federal SCHIP funds are used to pay for those additional abortions. The commenters believed that this requirement exceeds the statutory authority, will be burdensome for States and managed care entities, and may ultimately serve to dissuade States and managed care entities from offering abortion services. Several commenters also indicated that enforcement of the requirement is not feasible in an employer-sponsored insurance environment where the benefits package is predetermined by an employer and a commercial insurer, rather than by the State. They recommended that employer-sponsored programs be exempt from the separate contract requirement.

Response: Section 2105(c)(7) of the Act specifies that “payment shall not be made to a State under this section for any amount expended under the State plan to pay for any abortion or to assist in the purchase, in whole or in part, of health benefit coverage that included coverage of abortion.” Congressional authorities have made clear that this section of the statute requires separate contracts where managed care organizations will be providing abortions in addition to those specified in the law. Thus, contrary to the opinion of the commenters, this prohibition can not be satisfied by carving out or allocating a portion of the capitated rate to be paid for with State-only funds.

11. Preexisting Condition Exclusions and Relation to Other Laws (§ 457.480)

In proposed § 457.480 we implemented the provisions of sections 2103(f), and 2109 of the Act under the authority of section 2110(c)(6) we implemented the provisions of sections 2103(f), 2109 and 2110(c)(6). At § 457.480(a), we proposed to implement section 2103(f) of the Act and provide that, subject to the exceptions in paragraph § 457.480(a)(2), a State child health plan may not permit the imposition of any preexisting condition exclusion for covered benefits under the plan. In § 457.480(a)(2), we proposed that if the State child health plan provides for benefits through payment for, or a contract with, a group health plan or group health insurance coverage, the plan may permit the imposition of a preexisting condition exclusion but only insofar as permitted under ERISA and HIPAA.

In proposed § 457.480(b), we implemented sections 2109 and 2103(f)(2) of the Act, which describe the relationship between title XXI and certain other provisions of law. Specifically, as set forth in proposed § 457.480(b), these provisions include section 514 of ERISA, HIPAA, the Mental Health Parity Act of 1996 (MHPA) (regarding parity in the application of annual and lifetime dollar limits to mental health benefits) and the Newborns and Mothers Health Protection Act of 1996 (NMHPA) (regarding requirements for minimum hospital stays for mothers and newborns). See regulations at 45 CFR 146.136 for a discussion of the MHPA and 45 CFR 146.130 and 148.170 for a discussion of the NMHPA.

Comment: One commenter agreed with the inclusion of language in § 457.480 requiring compliance with the Mental Health Parity Act. However, several commenters raised concerns because they interpreted the language at § 457.480(b)(3) and (4) to mean that States must comply with the MHPA and the NMHPA, regardless of whether or not the State's benchmark plan includes these components. The commenters believed this requirement negates the flexibility otherwise provided the State in choosing the option of using a separate child health plan. The commenters believed that this language should be removed from the final regulation and that States should decide if inclusion of these components in their separate child health programs is appropriate.

One commenter indicated that this requirement would require the offeror of the benchmark plan either to price a SCHIP product separately to the State, to incorporate the mental health parity costs and benefits, or to include these benefits at the same cost (an unlikely scenario). Either way, the commenter argued that the provision reduces the flexibility of using a benchmark plan and thus the proposed linkage of SCHIP to these laws is not appropriate and should be removed.

Response: We agree that the proposed regulation language was unclear and have revised the language to clarify this issue. The commenters appear to have interpreted the proposed rule to mean that States must provide coverage for mental health services and services for newborns and mothers regardless of whether a State's benchmark plan includes coverage for those services. We did not intend to impose such coverage requirements.

The requirements of the MHPA apply only to group health plans (or health insurance coverage offered by issuers in connection with a group health plan) that provide such medical/surgical benefits for newborns and mothers and mental health benefits. Thus, the provisions of MHPA apply only to title XXI coverage provided through a group health plan and only if that plan offers mental health benefits. However, if a State uses a group health plan as a benchmark, then the State may be implicitly required to comply with the MHPA even if that law is not directly applicable. Similarly, the NMHPA applies directly only to group health plans and health insurance issuers (in the group and individual markets) providing benefits for hospital lengths of stay in connection with child birth. We did not intend to impose additional coverage requirements on States or to reduce the State's flexibility in defining its service packages. We have thus revised the regulations to clarify that only group health plans through which States provide coverage under a State plan are subject to the requirements of the provisions described in §§ 457.480(b)(3) and (4).

Comment: One commenter raised the issue of HIPAA requirements and the pre-existing condition exclusions. The commenter noted that because SCHIP enrollees generally will not meet the requirements of “eligible individuals” under HIPAA, the level of protectionafforded by this proposed rule against pre-existing condition exclusion clauses in a SCHIP benchmark package offered by a private insurer is unclear. The proposed rule does state that SCHIP benefits are creditable coverage; however, the commenter stated that the prohibition against pre-existing condition exclusions is triggered only if creditable coverage was followed by COBRA coverage. The commenter noted that clarification of the pre-existing condition exclusion provisions will be important for health providers caring for children with disabilities.

One commenter also indicated that the regulations do not permit any “preexisting conditions exclusions” for a State plan in general. However, if a SCHIP plan provides coverage through a group health plan, the plan could impose preexisting conditions exclusions in accordance with what is allowable under HIPAA. While HIPAA does limit the extent of preexisting condition exclusions, States should be allowed to negotiate with health plans the elimination of all preexisting condition exclusions.

Another commenter encouraged the inclusion of a statement at § 457.480(a)(2) that while States may, in very limited circumstances, permit the imposition of a pre-existing condition exclusion consistent with applicable Federal law, States have the discretion to, and are encouraged to, negotiate group health plan coverage free of such exclusions.

Response: Section 457.480(a) of the regulation implements section 2103(f)(1) of the Act and provides that a State may not permit the imposition of a pre-existing condition exclusion, except in the case of a State that obtains health benefits coverage through payment for, or a contract with, a group health plan or group health insurance coverage, in which case the State may permit the imposition of such an exclusion to the extent permitted under HIPAA. The protection afforded to enrollees is clear; they either face no pre-existing condition exclusion or, if enrolled in a group health plan, they potentially face an exclusion that in no case can be longer than the 12 months permitted under HIPAA. The commenter correctly notes that enrollees in a separate child health program may not meet the definition of “Federally eligible individual” under HIPAA's individual market protections (although they may if their most recent coverage was SCHIP coverage through a group health plan and they then exhausted any COBRA or State continuation coverage offered to them). Presumably, the commenter was concerned about former enrollees wishing to purchase private, individual market coverage. Title XXI does not provide enrollees with an assurance of meeting the definition of Federally-eligible individuals under HIPAA. However, section 2110(c)(2) of the Act as implemented at § 457.410 provides that coverage meeting the requirements of § 457.10 provided to a targeted low-income child constitutes creditable health coverage. Therefore, coverage under a separate child health program will count towards the minimum 18 months of coverage required for someone to qualify as a Federally-eligible individual.

Comment: One commenter also urged States that do and do not have mental health parity statutes to include coverage for a full range of mental illness services in their State plans when they opt to develop separate child health programs.

Response: States are given flexibility in designing their benefit packages. While we encourage States to provide services for mental illness, there is no Federal requirement for a State to include this coverage under its separate child health program if it does not elect to do so.

Comment: One commenter believed the regulation should include a statement that pre-existing condition exclusions are contrary to the intent of SCHIP and unfair. Therefore, even under the limited circumstances where such exclusions are allowed, States must be required to demonstrate attempts to negotiate group health plan coverage free of such exclusions. According to this commenter, only after demonstrating that those efforts have been exhausted, should a State plan with these very limited exclusions be approved.

One commenter asserted that the HIPAA-allowable conditions for permitting a waiting period for services for a preexisting condition are adverse to the purposes of initiating coverage for children cut off from access to services precisely because they lack coverage. The commenter believed most, if not all, children should be assessed, diagnosed, and treated quickly in response to their health deficiencies. The commenter believed this is a matter for Congress to reconsider.

Response: The language in the proposed rule at § 457.480(a)(1) and (2) was included based on section 2103(f)(1) of the Act. Section 2103(f)(1)(B) clearly provides for the possibility that States providing benefits through group health plans may allow those plans to impose pre-existing condition exclusions to the extent permitted by HIPAA. One limited exception to this rule is permitted. Under § 2103(f)(1)(B) of Title XXI, if a State child health plan provides for benefits through payment for, or a contract with, a group health plan or group health insurance, the plan may permit the imposition of those preexisting conditions which are permitted under HIPAA. This permits the imposition of preexisting conditions consistent with the requirements of such plans when the State is providing premium assistance through SCHIP to subsidize child or family coverage under a group health plan or group health insurance pursuant to § 2105(c)(3) of the statute. Therefore, we are unable to revise this section as suggested by the commenter.

12. Delivery and Utilization Control Systems (§ 457.490)

In accordance with section 2102(a)(4) of the Act, at § 457.490 we proposed to require that State plans include a description of the type of child health assistance to be provided including the proposed methods of delivery and proposed utilization control systems. In describing the methods of delivery of the child health assistance using title XXI funds, the proposed regulation requires a State to address its choice of financing and the methods for assuring delivery of the insurance product to children including any variations. We also proposed that the State describe utilization control systems designed to ensure that children use only appropriate and medically necessary health care approved by the State or its subcontractor. We set forth examples of utilization control systems in the preamble to the proposed rule.

Comment: One commenter noted that in this section of the proposed rule, HCFA requests a description of utilization controls designed to ensure that children use only appropriate and medically necessary health care, but does not define “medically necessary” in any specific manner. The commenter suggested that this term be defined in the regulation and suggested language to be used in the regulation as a definition of medically necessary.

Response: As we have indicated in response to comments on § 457.420, HCFA will not define medical necessity for SCHIP. The determination of medical necessity criteria for separate child health programs is left up to each State to define.

Comment: One commenter noted that utilization controls that might be appropriate for the adult population may not be appropriate for the pediatric population. As States implement these controls, it is important that they areappropriate for children. These controls should take into consideration children with special health care needs as well as the unique needs of children in general.

Response: The language in § 457.490(a) of the proposed rule very specifically says “methods for assuring delivery of insurance products to the children.” Section 457.490(b) provides for “systems designed to ensure that children use only appropriate * * *” (emphasis added). We believe this language, along with the language at proposed § 457.735 (now § 457.495) requiring States to assure appropriateness of care, very clearly requires that the utilization controls be appropriate for the pediatric population. If a State provides coverage for services for children with special health care needs, States would be expected to ensure appropriate utilization controls on these services also. We believe the language in paragraph § 457.490(a) requiring States to describe methods to assure delivery of services “including any variations,” is sufficient to address this commenter's concerns. “Variations” would include additional services delivered to special needs children.

Comment: We received two comments suggesting the addition of default enrollment language in the regulation. One commenter recommended that HCFA adopt language similar to the language in the Medicaid managed care proposed rule to address default enrollment under SCHIP for States that offer eligible children a choice of plans. The commenter suggested that HCFA require that States describe in their plans the policies and procedures that they will use to minimize rates of default enrollment and what efforts the State and its contractors will make to preserve traditional provider-patient relationships. The commenter also recommended that this section include an additional paragraph:

Describe policies and procedures that minimize rates of default enrollment where beneficiaries have a choice of plans, and what efforts have been made by the State and its contractors to preserve existing provider/patient relationships. States must also describe opportunities for beneficiaries to disenroll both for cause or on a periodic basis without cause.

Response: Default enrollment, also referred to as auto assignment, is a practice utilized by several States in their enrollment processes. However, we believe that any information or requirements regarding managed care enrollment procedures, including default enrollment, should be addressed as part of the requirements of § 457.110(a), rather than in this section.

Comment: One commenter supported the language in this section and indicated that this sets out a helpful framework that encourages States to ensure that utilization controls limit costs without denying essential health care to children.

Response: We appreciate the commenter's support.

Comment: One commenter recommended that § 457.490(a) be modified to be applicable not only to the delivery of the insurance products but also to delivery of services covered by the product.

Response: We have adopted this suggestion and revised the regulation text accordingly.

Comment: Two commenters recommended that this section be modified to require State plans to identify methods the States will use to monitor and evaluate delivery and utilization control systems to ensure that children receive appropriate and medically necessary care.

Response: Proposed § 457.735 (now § 457.495) addresses State plan requirements for assuring quality and appropriateness of care provided under the plan. Please see our responses to comments in that section.

13. Grievances and Appeals (Proposed § 457.495)

At § 457.495, we proposed to require States to provide enrollees in a separate child health program with the right to file grievances or appeals for reduction or denial of services in accordance with proposed § 457.985. In an effort to consolidate all provisions related to review processes, we have removed proposed § 457.495 and incorporated those provisions into new subpart K, which contains provisions regarding grievances and appeals. We address comments on proposed § 457.495 in new subpart K.

14. State Plan Requirement: State Assurance of the Quality and Appropriateness of Care (§ 457.495)

Sections 2102(a)(7)(A) and (B) of the Act require the State plan to describe the strategy the State has adopted for assuring the quality and appropriateness of care, particularly with respect to providing well-baby care, well-child care and immunizations, and for ensuring access to covered services, including emergency services. We proposed to implement this provision at § 457.735(a), and provided further specifications therein consistent with this statutory requirement.

We also proposed to include additional, more specific assurances designed to ensure the quality and appropriateness of care for particularly vulnerable enrollees. In § 457.735(b), we proposed that States must provide assurances of appropriate and timely procedures to monitor and treat enrollees with complex and serious medical conditions, including access to specialists.

In this final rule, we are redesignating the provisions of proposed § 457.735 (which were previously located in subpart G, Strategic planning) as § 457.495. We believed that these provisions are more appropriately presented in the context of this subpart. We respond to all public comments on proposed § 457.735 below.

Comment: We received several comments indicating that this section of the proposed rule was unclear as to whether the requirement for State assurance of quality and appropriateness of care applies to SCHIP coverage provided through employer plans. Commenters indicated that the requirements of the proposed regulation seem tacitly to assume that the State will have a direct, contractual relationship with all SCHIP participating health plans, including employer-sponsored plans. A commenter further stated that any attempt to apply such requirements directly to employer-sponsored plans would mean that no employer plans will ever qualify for the State's premium assistance under SCHIP, as there is no incentive for an employer or plan to invest resources to comply with these requirements. Commenters indicated that employer-sponsored health coverage systems do not identify individuals who can be classified into such categories as “enrollees with special or complex medical conditions,” making it difficult to report on these subgroups.

Response: We understand the commenters' concerns and desire that data reporting requirements under SCHIP are able to work within the systems and regulatory structure for premium assistance programs. The provisions of this regulation section do apply to such coverage because the statute contains no exemptions from its reporting requirements for SCHIP coverage offered through premium assistance programs. However, the regulation does not require States to report encounter data in measuring their progress toward meeting performance goals. We encourage States to use a variety of methods to collect appropriate data. While requiring plans to report encounter data to the State is one means of gathering these data, it is by no means the only method. For example, States can rely on mail or telephone surveys ofparticipating families and surveys of participating providers, or can design a data collection methodology that works with the structure and offerings of their SCHIP programs, including those operating premium assistance programs.

Comment: We received comments recommending that we require specific reporting requirements for States offering premium assistance programs through group health plans.

Response: States that implement or design premium assistance programs for SCHIP have flexibility to explore different methods of working with employers, health plans and beneficiaries to obtain information on SCHIP coverage provided through group health plans. Because of the difficulty of obtaining data from employer plans with which the State may not have direct contractual relationships, we intend to continue to work with States exploring the implementation of premium assistance programs and will continue to consider a variety of State proposals regarding appropriate methods of obtaining information about the quality of care obtained through premium assistance programs.

Comment: We received comments that the regulation should allow States the flexibility to use strategies that employers already have in place, or to use alternative strategies, to ensure quality and appropriateness of care.

Response: First, it should be noted that, upon further reflection, we have determined that the provisions and intent of proposed § 457.735 would fit more appropriately within Subpart D, Benefits. The focus of this provision is to ensure that SCHIP enrollees have adequate access to health care services as needed. Therefore, we have moved the comments and responses on this provision to Subpart D, § 457.495.

We agree that, pursuant to the provisions of title XXI, States should have the flexibility to use innovative strategies to ensure quality and appropriateness of care. Section 457.495(a) provides that States must provide HCFA with a description of the methods that a State uses for assuring the quality and appropriateness of care provided under the plan. We did not specify a particular method States must use to monitor appropriateness and quality of care. We anticipate that States will use a variety of methods, including those most suitable for the type of program or programs a particular State is implementing.

Comment: Several commenters recommended that we establish specific, unified, quality and access standards with respect to those areas set forth in § 457.495 and identify the methodologies for monitoring those standards in the regulations. Several commenters recommended that we require States to describe methods they will use to ensure that children have access to pediatricians and other health care providers with expertise in meeting the health care needs of children. The commenters felt that physicians who are appropriately educated in the unique physical and developmental issues surrounding the care of infants, children, young adults and adolescents should provide children's care. As the SCHIP program is specifically designed to serve children, commenters noted that it is critical that access to appropriate providers of care be required. One commenter recommended the annual application of a standardized survey of children's mental, physical, and social health.

Response: Section 457.495 requires that a State describe the specific elements of its quality assurance strategies. These may include the use of any of the following methods: quality of care standards; performance measurement, information and reporting strategies, licensing standards, credentialing/recredentialing processes, periodic reviews and external reviews. We are not requiring that States meet specific, unified standards regarding access to and quality of care. However, the regulation at § 457.495 does requires States to assure the quality and appropriateness of care provided under the State plan. As part of the State's assurances, each State agency would be expected to assure that all covered services are available and accessible to program enrollees. This means that all covered services would be available within reasonable time frames and in a manner that ensures continuity of care, adequate primary and specialized services, and access to providers appropriate to the population being served under the SCHIP plan. We believe this assurance is sufficient to address the concerns of the commenters.

Comment: One commenter recommended that quality of care standards reflect professional judgment and local standards of care as distinguished from standards of care developed by third-party payers or fiscal intermediaries.

Response: We encourage States, as they create methods of assuring and evaluating quality of care provided to SCHIP participants, to take into consideration sources of quality of care standards and to make a determination about whether to incorporate standards endorsed or used by local providers, national provider associations, national health research institutes, or health insurance or managed care organizations into their State plan.

Comment: Several commenters supported the requirement in § 457.735(a) that States describe methods of assuring the quality and appropriateness of care under SCHIP, particularly with regard to well-baby and well-child care, immunizations, and access to specialty care. One commenter suggested that HCFA use the phrase “access to specialty services” rather than the phrase “access to specialists” in § 457.735(b).

Response: We considered the commenters' suggestion and concluded that modifying the term “access to specialists” with the clarification of “access to specialists experienced in treating the enrolled's medical condition” would provide broader assurances that the children identified in § 457.495(c) would have access to the appropriate specialty services. Therefore, we have revised § 457.495(c) accordingly.

Comment: We received several comments applauding the inclusion of well-adolescent care with well-child care in the quality assurance requirements at § 457.495. Commenters suggested including the word “adolescent” in the definition of well-baby and well-child services and using the term in connection with well-child care throughout the regulation. The commenters indicated that they believe we should focus on the unique health needs of adolescents, which make up approximately 39 percent of SCHIP eligible youth, because their health needs differ from those of younger children. The commenters also urged HCFA to list specifically in the regulation medical sources that have guidelines for infants, children and adolescents. In these commenters' view, these sources should include the American Academy of Pediatrics' “Guidelines for Health Supervision of Infants, Children and Adolescents,” the American Medical Association's “Guidelines for Adolescent Preventive Services,” and the American College of Obstetricians and Gynecologists' “Primary and Preventive Health Care for Female Adolescents.”

Response: We appreciate the commenters' support of our emphasis on assuring the quality and appropriateness of care for children and our specific reference to certain types of adolescent care. While understand the view that this emphasis is important at § 457.495, because of our concern for assuring quality and appropriateness of care, we have not adopted the commenters suggestion with respect to using this terminology throughout therest of the final rule. The definition of child for purposes of SCHIP at § 457.10 and section 2110(c)(1) of the Act indicates that a “child” is an “individual under the age of 19.” Adolescents within this age range are clearly included in this definition and therefore we have not included the term in other references to well-baby and well-child care. Because we are not requiring that States adopt specific standards of care, we are not including the commenters' list of sources in the regulation text. We are including the commenters' listing here in the preamble so that States may consider these sources as recommendations in developing their own standards.

Comment: One commenter noted that accreditation is a method widely used by commercial purchasers to assure the quality of care provided by health plans. The commenter noted that accreditation, a comprehensive assessment of the quality of a health plan, is particularly useful in assessing the effectiveness and timeliness of procedures used to monitor and treat enrollees with serious medical conditions. The commenter urged HCFA to acknowledge that a State using HEDIS (Health Plan Employer Data and Information Set) measures would meet the State plan requirements set forth in this section. The commenter noted that HEDIS includes measures that specifically address the elements of care within SCHIP including:

—Childhood and adolescent immunizations;

—Use of appropriate medications for people with asthma;

—Children's access to primary case managers (PCPs);

—Annual dental visits;

—Well child visits in the first 15 months, third, fourth, fifth, and sixth years of life;

—Adolescent well visits;

—Ambulatory care;

—Inpatient utilization;

—Ratings of personal doctor, nurse, specialist;

—Rating of health care;

—Rating of health plan;

—Getting needed care and getting care quickly;

—How well doctors communicate;

—Courteous and helpful staff; and

—Customer service and claims processing.

Response: States have flexibility in determining the State-specific performance measures they will use in determining quality and access to care. In making these determinations, States have the ability to utilize those data collection tools and analysis methodologies that are most suited to the circumstances of their SCHIP program. HEDIS is one of several tools we recommended in the proposed regulation that States consider as they design ways of measuring appropriateness and quality of care in SCHIP, but there may be other tools States may wish to consider. Specifically, in the preamble to the proposed rule, we recommended that States refer to several tools including the Consumer Assessments of Health Plans Study (CAHPS), the U.S. Preventive Services Task Force Guidelines, Bright Futures: Guidelines for Health Supervision of Infants, Children, and Adolescents, and the Office of Disease Prevention and Health Promotion's Health People 2000 and Healthy People 2010.

Comment: One commenter cautioned HCFA that while HEDIS is a widely accepted and adopted collection system, it has limitations in its usefulness for monitoring performance under SCHIP. The commenter urged HCFA to work with NCQA to understand these limitations and the explore ways to address them. Additionally, the commenter encouraged HCFA to include the American Academy of Pediatrics Guide for Health Supervision III to the list of standards, benchmarks, and guidelines states should look to for performance measures.

Response: We agree that the suggested performance measure guidelines mentioned in the preamble to the proposed rule all have certain limitations that the States should take into consideration as they develop strategies for measuring performance goals related to their strategic objectives. Additionally, we encourage States to consider the American Academy of Pediatrics Guide for Health Supervision III in developing their performance measures.

Comment: Commenters recommended that we require States to include procedures to monitor the extent to which the program has sufficient network capacity, including providers and specialists who serve the particular needs of the adolescent enrollees, both male and female, and provides services such as women's health services, family planning and transitional services. According to these commenters, the monitoring should include measures relevant to the care of adolescents, (annual well-adolescent visits, adolescent immunization rates, etc.) and immigrants, and access to services without unreasonable delay.

Response: We have not adopted the commenters' suggestions. Section 457.495 requires States to include in the State plan a description of the methods that a State uses for assuring the quality and appropriateness of care and for ensuring access to covered services provided under an SCHIP plan. It is therefore, not appropriate to include a list of specific types of services, specialists, or groups; and risk unintentionally excluding an area that also needs attention. However, we did include language regarding access to specialists in general in order to emphasize the need for such access. We have also required States to provide a decision regarding the authorization of health services within 14 days of the service being requested. A possible extension to this 14 day period may be granted in the event that the enrollee requests an extension or the physician or the health plan determines that additional information is required. All such decisions must be made in accordance with the medical needs of the patient. The language of section 457.495 as finalized, allows us to address the concerns of the commenters while allowing States the flexibility the SCHIP statute provides them.

Comment: One commenter indicated that it was difficult to determine the applicability of the requirement to assure appropriate and timely procedures to monitor and treat enrollees with complex and serious medical conditions for fee-for-service programs. The commenter believed that the quality of care monitoring requirement in § 457.495(a) is sufficient to protect enrollees and that the requirement at § 457.495(b) regarding complex and serious medical conditions should be eliminated.

Response: We disagree with the commenter. Because of the importance of ensuring that children with chronic, serious or complex medical conditions receive continuous and appropriate care, with the ability to access specialists as often as needed, particular attention is necessary in specifying the requirement at § 457.495. We understand that it is more difficult for States to implement this requirement in the fee-for-service sector than it would be in a managed care environment. However, in order to assure quality care to participants with chronic, serious or complex medical conditions, it is essential that States provide specific assurances that they have established appropriate procedures to monitor and treat these participants whether they are enrolled through fee-for-service programs or through MCEs. Therefore, we have retained the requirement at § 457.495(b), as revised.

Comment: One commenter urged HCFA to require the States to describeprocedures for providing case management to those with complex and serious medical conditions. The commenter believed that quality of care for those with complex medical conditions is greatly enhanced by case management. The commenter also urged HCFA to require States' to include appropriate peer review by pediatricians and appropriate pediatric specialists in their quality assurance mechanism.

Response: While States may want to establish procedures for providing case management to enrollees with chronic, complex or serious medical conditions to enhance quality and access to care for those participants, we have not required all States to use that particular method to assure quality and appropriateness of care. We note that case management is one service that States may, but are not required to, provide under § 457.402. However, other methods to assure quality and appropriate care are also acceptable and may be just as effective, depending upon the design of the State's SCHIP.

Comment: One commenter suggested that we revise § 457.495(b) as follows: “States must assure appropriate and timely procedures to monitor and treat enrollees with complex, serious or chronic medical conditions (including symptoms) including access to appropriate pediatric, adolescent and other specialists and specialty care centers and must assure that children with complex, serious or chronic medical conditions receive no lower quality of care than received by children with special health care needs served by the State's programs under title V of the Social Security Act.”

Response: We will modify the phrase “complex and serious”, to add the term “chronic”, as suggested by the commenter. In addition, to provide further flexibility, we are changing the word “and” to “or”; and the phrase will be written as, “chronic, complex or serious”. We believe this phrase encompasses the symptoms of these enrollees, making further specification unnecessary. We have also revised the requirement for access to specialists within that provision to read, “access to specialists experienced in treating the specific medical condition* * *” We believe the addition of these terms in § 457.495(b) assures that SCHIP programs will adequately serve the health needs of enrollees with chronic, complex or serious medical conditions, by assuring that children with these conditions will have access to care from specialists most adequately suited to meet the child's needs. Since States have the flexibility to establish their own standards for assuring appropriate treatment and quality of care, we do not agree with the commenter's suggestion that we should specify the inclusion of specialty care centers or particular standards of care.

Comment: One commenter mentioned several times throughout its comments that access to dental services is a problem under Medicaid and that HCFA should take action to correct this problem.

Response: While Medicaid coverage of dental services is not the subject of this regulation, we would like to bring to the attention of the commenter the HCFA/HRSA Oral Health Initiative (OHI) which is an ongoing effort to improve access to high quality oral health services for vulnerable populations, particularly children enrolled in Medicaid and SCHIP. HCFA teamed with HRSA almost two years ago and initiated the OHI in a effort to bring together Federal staff, State Medicaid agencies and national, State and local level dental organizations to recognize and address this issue. Both HCFA and HRSA recognize that resolving barriers to oral health access in Medicaid and SCHIP must begin with the understanding that Medicaid and SCHIP are programs that rely upon Federal-State partnerships: the Federal government provides broad guidelines under which States implement individual programs. Both HCFA and HRSA believe that solutions to oral health disparity in Medicaid and SCHIP will most likely be found at the local and State levels. Both agencies seek to provide resources, guidance and technical assistance necessary to enable States and localities to better address their local oral health concerns.

Some activities that have been undertaken by the OHI include: co-sponsoring a national leadership conference that brought together for the first time the State Medicaid and State Dental Directors with the leadership of the dental profession; collaborating with the private sector (that is, the American Dental Association convened a second national leadership conference for stakeholders to continue the progress and dialogue achieved in the first meeting and also to include State legislators in the process); supporting State dental summits/workshops to provide the opportunity for State level players to meet with each other on a face-to-face basis to address oral health problems specific to their States and develop State-specific strategies and implementation plans; promoting best practices by providing State dental officials the opportunity to share common dental concerns and potential best practices by initiating and supporting a privately managed electronic list serve which connects, for the first time, Medicaid program officials in each State with each other, and with State health officials and the Federal OHI team. Discussion of further activities undertaken by HCFA and the OHI to improve the oral health of this vulnerable population is contained in the Department responses to the April 27, 1999 report of the General Accounting Office (GAO), “Oral Health: Dental Disease is a Chronic Problem Among Low-Income Populations.” This report is available from the GAO web site at www.gao.gov.

Finally, in an effort to focus attention on the oral health issues and to build an oral health infrastructure, HCFA has appointed a full-time Chief Dental Officer to serve as a focal point for oral health issues and has identified staff in each HCFA Regional Office to serve as Medicaid dental coordinators.

Comment: Several commenters suggested that the regulation include language to specifically require access to various types of providers, such as, pediatric and adolescent specialists, and obstetricians/gynecologists. In addition, one commenter suggested that State plans should be required to assure that female adolescents have direct access to women's health specialists and that pregnant adolescents be permitted to continue seeing their treating provider through pregnancy and the post-partum period in instances where the contracting plan or provider has left the SCHIP program.

Response: We have not adopted the commenters' suggestions. Section 457.495 requires that the State plan include assurances of the quality and appropriateness of care and services provided under a State plan including treatment of chronic, serious or complex medical conditions and access to specialists. This requirement addresses the concerns of the commenters while allowing States the flexibility to establish the means by which they will assure access to appropriate care that the SCHIP program provides them. This regulation requires States to ensure access to providers appropriate to the population being served under the State plan.

Comment: Two commenters recommended that we revise the regulation to provide that a State and its participating contractors must provide services as expeditiously as the enrollee's health condition requires. The commenter also suggested time frames of approval of a request for services within seven calendar days after receipt of the request for services, with a possible extension of fourteen days. Thecommenters also recommended an expedited time frame if the physician indicates, or the State/contractor determines that following ordinary time frames could seriously jeopardize the enrollee's life or health or ability to regain maximum function, to be no later than 72 hours after receipt of the request for services, with a possible extension of up to 14 additional calendar days. Another commenter suggested requiring a response within seven days to an initial request for service or within 72 hours for an expedited procedure.

Response: We recognize the commenters' concerns and have addressed these issues in new subpart K, Applicant and Enrollee Protections, at § 457.1160.

E. Subpart E—State Plan Requirements: Enrollee Financial Responsibilities

1. Basis, Scope, and Applicability (§ 457.500)

A State that implements a separate child health program may impose cost-sharing charges on enrollees. A State that chooses to impose cost-sharing charges on enrollees must meet the requirements described in section 2103(e) of the Act. In proposed § 457.500, we set forth section 2103(e) of the Act as the statutory basis for this subpart, containing cost-sharing provisions. As proposed, this subpart consists of provisions relating to the imposition under a separate child health program of cost-sharing charges including enrollment fees, premiums, deductibles, coinsurance, copayments, and similar cost-sharing charges. We proposed that these provisions apply to all separate child health programs regardless of the type of coverage (benchmark, benchmark equivalent, Secretary-approved or existing comprehensive State-based coverage) provided through the program.

We noted in the preamble that these requirements apply when a State with a separate child health program purchases family coverage for the targeted low-income child under the waiver authority of section 2105(c)(3) of the Act and proposed § 457.1010 and when a State provides premium assistance for coverage under a group health plan as defined in § 457.10. We proposed that this subpart does not apply to Medicaid expansion programs. In this final rule, we revised the statutory basis at § 457.500(a) to include section 2101(a) of the Act, which describes that the purpose of title XXI is to provide funds to States to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children in an effective and efficient manner.

Comment: A number of commenters noted that the numerous protections written into the Medicaid statute were not written into the SCHIP statute because Congress clearly recognized that these populations are different and intended that they be treated differently. The commenters noted that cost-sharing gives working families a sense of pride in sharing the cost of medical services, just like their friends, neighbors, and relatives who have employer-based insurance. They also indicated that asking families to track their own cost-sharing expenditures contributes to the development of self-sufficiency. Some commenters noted that establishing low levels of cost-sharing will encourage substitution of coverage.

Response: We have implemented §§ 457.500 through 457.570 of the final regulation under the authority of section 2103(e) of the Act. Congress included cost-sharing protections for children covered under SCHIP through separate child health programs, in recognition of the important role that affordability plays in determining whether a child has access to health care insurance and essential health care services for their families. High cost-sharing charges could result in low-income families choosing to remain uninsured, dropping insurance coverage, or avoiding utilization of necessary health care services. Increased cost sharing may also encourage enrollees to access health care only during times when care is most expensive (that is, during emergency or critical health care situations). We have retained States' ability to rely on a methodology for tracking cost sharing that places some of the responsibility on the enrollee. As noted in the preamble to the proposed rule, we do, however, encourage the use of more formal tracking mechanisms that ease any tracking or administrative burden on enrollees and providers, such as a swipe card. While we recognize that low levels of cost sharing may encourage substitution, States must meet the requirements in subpart H, Substitution of Coverage, that are intended to limit the occurrence of substitution.

Comment: One commenter suggested that HCFA revise this section to apply the SCHIP copayment rules to Medicaid expansion programs, not just separate child health plans. The commenter believed that this revision would effectuate Congressional intent, which was to allow States flexibility in implementing SCHIP plans.

Response: Section 2103(e)(4) of the Act provides that the cost-sharing requirements and limitations established pursuant to section 2103(e) do not affect the rules relating to the use of enrollment fees, premiums, deductions, cost sharing, and similar charges in a Medicaid expansion program under section 2101(a)(2). Therefore, Congress has made it clear that these cost-sharing provisions were intended to apply to separate child health assistance programs only. The title XIX cost-sharing rules apply to Medicaid expansion programs, and these rules generally prohibit cost sharing for children. Therefore, the reference to Medicaid expansion programs in § 457.500(c) has been removed.

Comment: One commenter recommended that we include language in the preamble advising States that they must ensure that cost-sharing requirements are administratively workable and not unduly burdensome for managed care entities.

Response: We agree with the commenter. States should strive to impose cost-sharing charges in a manner that eases administrative burden on managed care entities and their participating providers and thereby promotes provider participation in SCHIP. We believe the cost-sharing provisions in §§ 457.500 through 457.570 of this final rule provide States with flexibility to use a variety of strategies to implement these requirements while at the same time providing enrollees with important protections.

2. General State Plan Requirements (§ 457.505)

Section 2103(e)(1)(A) of the Act specifies that a State plan must include a description of the amount (if any) of premiums, deductibles, coinsurance, and other cost sharing imposed. Section 2103(e)(1)(A) also specifies that any such charges be imposed pursuant to a public schedule. In accordance with the statute, at § 457.505, we proposed that the State plan must include a description of the amount of premiums, deductibles, coinsurance, copayments, and other cost sharing imposed. We further proposed that the State plan include a description of the methods, including the public schedule, the State uses to inform enrollees, applicants, providers, and the general public of the cost-sharing charges, the cumulative cost-sharing maximum, and any changes to these amounts.

We also proposed that States that purchase family coverage or offer premium assistance programs must describe how they ensure that enrollees are not charged for copayments,coinsurance, deductibles, or similar fees for well-baby and well-child care services and that they do not charge American Indian/Alaska Native (AI/AN) children cost sharing. We also proposed that a procedure that primarily relies on a refund given by the State to implement the requirements of this subpart is not an acceptable procedure. We proposed that in States that purchase family coverage or establish premium assistance programs, the State also must describe in its State plan the procedures used to ensure that enrollees are not charged cost sharing over the cumulative cost-sharing maximums proposed in § 457.560. We emphasized that this process must not primarily rely on a refund for cost sharing paid in excess of the cumulative cost-sharing maximum. In § 457.505, we have added a paragraph (c) that will require States to include in the State plan a description of the disenrollment protections required under § 457.570. We have also added paragraph (e) in this section to reduce redundancy and more clearly identify the State plan requirements when a State uses a premium assistance program.

Comment: Several commenters did not agree with the statement in the preamble that suggested that providers could bill the State directly, so that enrollees are not inappropriately charged for certain services. They noted that many health plans are not willing to make the administrative changes necessary to bill the State agency instead of the enrollee and, in light of the difficulties, proposed that a refund component be a valid option.

Response: We disagree. States should establish adequate procedures to ensure the requirements for cost-sharing charges are met and to educate both the provider and the enrollee regarding cost-sharing obligations. Having providers bill the State directly is one option States may use as part of these procedures. We also note that we have not prohibited the use of refunds in all circumstances, but we do require that a State not use a refund as the primary method for assuring compliance with cost-sharing prohibitions and cumulative cost-sharing maximums. Other examples of tracking procedures include informing enrollees that they are approaching the cumulative cost-sharing maximum right before the cap is reached, or sending monthly letters to providers to inform them of which enrollees do not need to pay copayment amounts as of a certain date. We have revised proposed section § 457.505(d) to clarify that when States provide premium assistance for group health plans, cost-sharing charges are not permitted for well-baby and well-child care services; cost sharing is not permitted for AI/AN children; and enrollees must not be charged cost sharing that exceeds the cumulative cost-sharing maximum. These provisions must be described in the State plan. Finally, the provision specifying that “a procedure that primarily relies on a refund given by the State for overpayment by an enrollee is not an acceptable procedure for purposes of this subpart” has been moved to § 457.505(e) for clarity.

Comment: One commenter suggested that we define the word “primarily” as used in § 457.560 for a variety of situations. For example, they indicated that a State may not be able to ascertain at the time of eligibility determination whether an applicant is an AI/AN due to the lack of verification of AI/AN status on the part of the applicant and/or the lack of cooperation in verification on the part of the tribe. In this situation, the State may not waive cost-sharing charges for the individual and, in their view, the only way a State could comply with the requirement that the AI/AN population be excluded from cost sharing would be to use a procedure of refunds for overpayments, once AI/AN status was verified.

Response: We realize that there may be unforeseen circumstances when an enrollee has paid cost sharing that either should not have ever been charged or is in excess of the cost-sharing limits. In these cases, refunds will be necessary. However, refunds should not be the State's only or ongoing method to ensure that cost sharing does not exceed the regulatory limits. The State should inform each enrollee of the precise amount of the cumulative cost-sharing maximum based on the enrollee's individual family income at the time of enrollment and/or reenrollment or, in the case of a set out-of-pocket cap, inform the enrollee of cost sharing as required under § 457.525. Rather than rely on a refund mechanism, the State should educate the enrollee regarding the cumulative cost-sharing maximum and when not to pay cost sharing for the applicable time period. In the case of the AI/AN population, States should provide accessible information to the population about the State requirements for demonstrating AI/AN status and, as in other instances, seek to minimize the use of refunds as a method for compliance with the cost-sharing requirements of Subpart E.

3. Premiums, Enrollment Fees, or Similar Fees: State Plan Requirements (§ 457.510)

Section 2103(e)(1)(A) of the Act requires that the State plan include a description of the amount of premiums, deductibles, coinsurance and other cost sharing imposed pursuant to a public schedule. At § 457.510 we proposed that when a State imposes premiums, enrollment fees, or similar fees on SCHIP enrollees, the State plan must describe the amount of the premium, enrollment fee, or similar fee, the time period for which the charge is imposed, and the group or groups that are subject to these cost-sharing charges. We also proposed that the State plan include a description of the consequences for an enrollee who does not pay a required charge. We noted in the preamble that the State should indicate enrollee groups that are exempt from any disenrollment policy.

In addition, proposed § 457.510 set forth the requirement that the State plan include a description of the methodology used to ensure that total cost-sharing liability for a family does not exceed the cumulative cost-sharing maximum specified in proposed § 457.560, pursuant to section 2103(e)(3)(B) of the Act. We noted in the preamble to the proposed rule that the State's methodology should include a refund for an enrollee who accidentally pays more than his or her cumulative cost-sharing maximum. We proposed that a methodology that primarily relies on a refund by the State for cost-sharing payments made over the cumulative cost-sharing maximum will not be an acceptable methodology.

We discussed the findings of the George Washington University study on the types of methods States and private insurance companies use to track cost-sharing amounts against an enrollee's out-of-pocket expenditure cap. We described several examples of methods States could use to ensure that enrollees do not exceed the cumulative cost-sharing maximum. We solicited comments on tracking mechanisms States can use that do not place the burden of tracking cost-sharing charges on the enrollee.

Comment: Two commenters specifically urged HCFA to encourage States to adopt cost-sharing provisions for premiums, enrollment fees, and similar fees, as opposed to cost-sharing charges related to the provision of services (copayments, coinsurance, deductibles, or similar cost-sharing charges). The commenter asserted that applying cost sharing to premiumsinstead of services would avoid the tracking burden altogether.

Response: We agree that it would be easier to track cost sharing if the State only imposed premiums or enrollment fees and that this would relieve States from the burden of tracking cost sharing associated with services. However, the statute provides States with flexibility to design cost sharing that meets their policy goals. While some States may wish to design cost sharing in a way that avoids or minimizes the need for tracking, others may favor the use of copayments to discourage over-utilization. We therefore encourage States to consider the ease of tracking along with many other factors in devising their cost-sharing systems, but do not prescribe or recommend a specific cost-sharing design.

Comment: One commenter recommended that HCFA revise paragraph (d) of this section to require that State plans include a description of the disenrollment protections established pursuant to § 457.570, in addition to the consequences for an enrollee who does not pay a charge. The commenter noted that § 457.570 requires disenrollment protections; however, nothing in the regulation currently requires States to describe these processes in the State SCHIP plan.

Response: We agree with this comment. We intended to require States to include disenrollment protections in their State plans, as stated in the preamble to the proposed regulation. Therefore, we have revised § 457.510(d) and § 457.515(d) to include the State plan requirement that States provide a description of their disenrollment protections as required under § 457.570.

Comment: Several commenters indicated that HCFA should require, rather than recommend, that States develop tracking mechanisms that do not rely on the beneficiary demonstrating to the State that he or she has met the cumulative cost-sharing maximum. The commenters did not believe that the finding of the George Washington study (that States were not charging high enough cost-sharing to make it likely that families reached their cap) was good cause for a weaker standard. The commenters noted that States are currently experiencing very good budget climates that are likely to weaken at some point, perhaps causing States to raise their cost-sharing requirements. They also observed that expansion to higher income eligibility groups may cause States to increase cost sharing under SCHIP. Moreover, the commenters believed that all States could develop the capability to track enrollees' cumulative cost sharing if required, since some States do so currently. And the commenters urged that the requirement be imposed on States and contracting plans rather than individual providers, since such a responsibility could deter provider participation in SCHIP.

Response: As part of the study conducted by George Washington University, States were invited to a meeting to discuss tracking of cost sharing under SCHIP. During this discussion, HCFA noted that some States were capable of using sophisticated tracking mechanisms like swipe cards to track their cost sharing. These States typically have a large concentration of managed care entities with participating providers who already have in place hardware that aids in tracking cost sharing for the SCHIP population. However, States with providers located in rural areas, and with providers who are not part of managed care networks, have indicated that it is administratively expensive to require States to put in place a sophisticated swipe card mechanism that would track cost sharing. Therefore, we have decided to continue to encourage States to use a tracking mechanism that does not rely on the enrollee, but will not require such a tracking mechanism due to implementation challenges and resource limitations in different States.

States must distribute, as part of the information furnished consistent with §§ 457.110 and 457.525 and general outreach activities, materials that inform the enrollee regarding his or her cost-sharing obligations, and assist the family in keeping track of the charges paid. At a minimum, States are required to include the schedule of cost-sharing charges, and the dollar amount of the enrollee's family's cumulative cost-sharing maximum. We also recommend that States educate the enrollee's family regarding tracking cost sharing against the cumulative cost-sharing cap.

Comment: Several commenters disagreed with our provision at § 457.510(e) that “a methodology that primarily relies on a refund given by the State for overpayment (of cost sharing) by an enrollee is not an acceptable methodology.” These commenters indicated that the use of a refund process can be the most cost effective and simple approach to ensuring that cost sharing does not exceed limits, or that individuals exempt from cost sharing are not required to pay when it is not appropriate. The commenters believe States should be given the flexibility to develop their own process as long as the process guarantees that families will not have to pay cost-sharing charges for which they are not responsible. The commenters suggested that we consider that States are limited to a 10 percent cap on administrative costs, and that overly prescriptive measures added to administrative costs can take away from other important administrative functions, such as outreach and eligibility determinations. Several commenters also questioned how these provisions apply to a State that administers SCHIP through employer-sponsored health insurance plans.

Response: As stated in an earlier response, we recognize that there are situations in which the use of a refund methodology may be necessary. However, we believe States generally must be proactive and provide specific procedures for enrollees and their families to follow so that they are not overcharged cost sharing. A State methodology that merely reimburses or refunds enrollees for any cost sharing in excess of the cumulative cost-sharing maximum without including steps to help enrollees avoid overpayment will require the enrollees to outlay cash to obtain access to services that they should have been able to access without the burden of cost sharing. We view such a refund policy to be contrary to the limits on cost sharing set forth in section 2103(e) of the Act.

Comment: One commenter suggested that we revise this section to require that, in describing the methodology used to ensure that total cost-sharing liability for an enrollee's family does not exceed the cumulative cost-sharing maximum, the State plan must describe how the State calculates total income for each family, and how the State will prevent charges over the cumulative cost-sharing maximum. The commenter noted that the preamble stated that the description of the methodology must explain these areas. The commenter asked that this language be incorporated into the regulation.

Response: We agree with the general point that the commenter was making, that States should be required to disclose the principles used to calculate cumulative cost sharing maximums, but we believe such disclosure is equally important on an individual level as on a statewide level. Thus, we are adding paragraph (d) to 457.560, to require that the States provide the enrollee's family the precise dollar amount of the cumulative cost-sharing maximum at the time of enrollment and at the time of re-enrollment. However, we have not revised § 457.510 because it already requires the State plan to describe the methodology for ensuring that cost sharing for a family does not exceedcumulative maximums, and this must include the information described above. If the description submitted in a proposed State plan or amendment does not include a full explanation of how income is calculated for purposes of the cumulative cost sharing maximum and other relevant details, HCFA requests this information in reviewing the submission.

Comment: One commenter stated that, if a family must pay more than the customary rate for child care due to the special needs of the child, there should be a mechanism for that additional cost to be considered when determining financial status. Children with chronic conditions should be defined to include children with mental health and substance abuse conditions. Another commenter agreed with the finding of the George Washington study that children with chronic conditions or special needs often have expenses for related, non-covered services, which can create a tremendous financial burden for the family. The commenter recommended that the statute be changed to eliminate the cost-sharing provision for eligible children with chronic illness or other special needs. In this commenter's view, at a minimum, all related expenses should be counted toward the cumulative cost-sharing cap for these children. The commenter also agreed with the George Washington study's recommendation that States assign a case manager to children with chronic needs to assure that cost sharing does not exceed the cumulative cost-sharing maximum for these children.

Response: Title XXI does not include any special provision regarding cost sharing for children with special needs or chronic conditions and we appreciate the commenter's recognition that this issue is driven by the statute. States may consider the additional costs, including the costs associated with child care and case management, borne by families of children with special needs or chronic conditions when imposing cost sharing on this population, but HCFA does not have statutory authority to require that States take these costs into account. In addition, States may, at their option, exempt families of children with special needs or chronic conditions group from cost sharing, because the added costs of care can significantly reduce their disposable income. However, we have not specifically required States to exempt these children, and have therefore not included the commenter's recommendation in the regulation text.

Comment: Several commenters opposed our suggestion in the preamble that States count non-covered services towards the cumulative cost-sharing maximum.

Response: We do not require States to count the costs of non-covered services towards the cumulative cost-sharing maximum. However, we encourage States to consider the additional costs of uncovered services particularly for families with special needs children, when imposing cost sharing. States may pursue this policy option by counting non-covered services toward the cumulative cost-sharing maximum or by implementing other State policies to limit the burden on such families.

4. Co-Payments, Coinsurance, Deductibles, or Similar Cost-Sharing Charges: State Plan Requirements (§ 457.515)

Section 2103(e)(1)(A) of the Act requires that the State plan include a description of the amount of premiums, deductibles, coinsurance and other cost sharing imposed. We proposed that the State plan describe the following elements regarding copayments, coinsurance, deductibles or similar charges: the service for which the charge may be imposed; the amount of the charge; the group or groups of enrollees to whom the charge applies; and the consequences for an enrollee who does not pay a charge. We proposed that the State plan describe the methodology used to ensure that total cost-sharing liability for an enrollee's family does not exceed the cumulative cost-sharing maximums. This description must explain how the State calculates total income for each family, and how the State will prevent charges over the cumulative cost-sharing maximums.

Finally, we proposed, in accordance with the prudent layperson standard in the Consumer Bill of Rights and Responsibilities, that States must provide assurances that enrollees will not be held liable for costs for emergency services above and beyond the copayment amount that is specified in the State plan. Specifically, we proposed that the State plan must include an assurance that enrollees will not be held liable for additional costs, beyond the copayment amounts specified in the State plan, that are associated with emergency services provided at a facility that is not a participating provider in the enrollee's managed care network. In addition, we require that the State will not charge different copayment amounts for emergency services, based upon the location (in network or out of network) of the facility at which those services were provided. We indicated that we welcomed public comments on our proposed policy. In this final rule, we have added a provision to § 457.515(d) that States must describe in the State plan the disenrollment protections adopted by the State pursuant to § 457.570.

Comment: One commenter suggested that §§ 457.510(d) and 457.515(d), which require that the State plan describe the consequences for an enrollee who does not pay a charge, be revised to also require State plans to describe the consequences for a provider who does not receive a payment from an enrollee. The commenter indicated that providers should have information on the State's policy regarding unpaid copayments. The commenter questioned if providers may deny services to, or pursue collection from, enrollees who refuse to pay cost sharing. The commenter also asked if States will increase payments to providers when enrollees do not pay.

Response: Unlike under the Medicaid program, we do not have the statutory authority to prevent providers under separate child health programs from denying services to enrollees who do not pay their cost-sharing charges. Nor do we have clear authority to preclude providers or the State from billing the enrollee for unpaid cost-sharing charges. State plans should, consistent with fairness and equity, ensure that the provider or State gives the enrollee a reasonable opportunity to pay cost sharing before pursuing collection. Providers should refer the enrollee back to the State if he or she is demonstrating a pattern of non-payment, so that the State can review the financial situation of the enrollee. For example, the State should inquire whether the enrollee's income has dropped to a Medicaid eligibility level, or to a level of SCHIP qualification that does not require cost sharing or requires it at a lower level. We also suggest that States maintain open communication with providers regarding any financial losses for the provider resulting from non-payment of cost sharing. However, we note that the State's policy in this area is a matter of State discretion under this regulation.

Comment: One commenter urged HCFA to add a provision making clear that an enrollee may not be denied emergency services based on the inability to make a copayment, regardless of whether the provider is inside or outside of the enrollee's managed care network. The commenter also recommended that we include in the preamble a discussion of the obligations of emergency services providers under the Emergency Medical Treatment and Active Labor Act (EMTALA).

Another commenter suggested that as a general rule for all SCHIP services, including emergency services, cost-sharing limits should apply only to services delivered through network participating providers. If there is to be an exception to this rule for emergency services, then cost-sharing limits should only apply to out-of-network emergency service providers that are not within a reasonable distance of network participating providers.

Response: While this is not an appropriate vehicle to discuss EMTALA responsibilities at length, when those responsibilities are triggered, a hospital cannot turn away a patient solely because of inability to pay. In addition, § 457.410 requires States to provide coverage of emergency services; § 457.495 requires States to ensure that SCHIP enrollees have access to covered services, including emergency services; and § 457.515 specifies that enrollees cannot be held liable for cost sharing for emergency services provided outside of the managed care network.

If an enrollee goes outside of a managed care network to receive non-emergency services that are not authorized by the health plan, then the enrollee may be responsible for the full cost of the services provided. However, because of the nature of emergency services and the importance of ensuring that enrollees receive such services without delay or impediment, such a situation is not reasonable. Thus, as we discuss further below, we have retained the regulation text at § 457.515(f) providing that enrollee financial responsibility for emergency services must be equal whether the enrollee obtains the services from a network provider or out-of-network.

Comment: Several commenters supported the proposed requirement that beneficiary cost sharing for emergency services can not vary based on whether the provider is participating in a managed care network or not. One commenter specifically asserted that the use of differential copayments would be contrary to the spirit of the “prudent layperson” standard for emergency services. Another commenter recommended retaining or lowering the proposed maximum limit for copayments on emergency services, rather than raising the limit to levels parallel to those permitted in the Medicare+Choice programs, in light of the inability of many low-income families to access this amount at the time of an emergency.

Response: In keeping with the prudent layperson standard of assuring immediate access to emergency services, we have retained the prohibition against differential copays based upon location (in-network or out-of-network) under § 457.515(f). These services are required to address an emergency and can be time sensitive, and higher copayment levels for out of network providers might result in an unacceptable delay to determine whether the provider participates in the enrollee's managed care network. Furthermore, differential copayment levels might affect the ability of enrollees to access the closest and most accessible provider.

We have neither raised nor lowered the proposed permissible copayment levels for emergency services, because we believe the overall cost-sharing limitations are sufficient to protect enrollee families. We have not adopted the Medicare+Choice policy that would have permitted a $5.00 copayment for emergency medical services. The cost sharing provisions at § 457.555 will apply to emergency medical services.

Comment: We received a comment on our statement in the preamble that we considered adopting the Medicare+Choice policy regarding emergency services obtained outside of the provider network. The commenter noted that limitations on emergency room cost sharing at Medicare+Choice levels, whether in network or out of network, could be administratively burdensome to group health plans and participating providers, and might dissuade such entities and practitioners from contracting with SCHIP.

Response: As noted above, we have not adopted the Medicare+Choice policy described in the preamble to the proposed rule. We do note, however, that premium assistance programs are subject to the same cost-sharing requirements and protections as other types of SCHIP programs. Such protections are required by statute and recognize the unique financial constraints of the SCHIP population. In situations where employer plans charge more than is permissible under these rules, the State will need to develop a mechanism to prevent enrollees from paying excess charges.

5. Cost Sharing for Well-Baby and Well-Child Care (§ 457.520)

Under section 2103(e)(2) of the Act, the State plan may not impose copayments, deductibles, coinsurance or other cost sharing with respect to well-baby and well-child care services in either the managed care or the fee-for-service delivery setting. At proposed § 457.520, we set forth services that constitute well-baby and well-child care for purposes of this cost-sharing prohibition. We proposed to define these well-baby and well-child services consistent with the definition of well-baby and well-child care used by the American Academy of Pediatrics(AAP) and incorporated in the Federal Employees Health Benefits Program (FEHBP) Blue Cross and Blue Shield benchmark plan.

We also proposed to apply the prohibition on cost sharing to services that fit the definition of routine preventive dental services used by the American Academy of Pediatric Dentistry(AAPD) when a State opts to cover these services under its program.

We proposed at § 457.520 that the following services are considered well-baby and well-child care services for the purposes of the prohibition of cost sharing under section 2103(e)(2):

• All healthy newborn inpatient physician visits, including routine screening (whether provided on an inpatient or on an outpatient basis).

• Routine physical examinations.

• Laboratory tests relating to their visits.

• Immunizations, and related office visits as recommended in the AAP's “Guidelines for Health Supervision III” (June 1997), and described in “Bright Futures: Guidelines for Health Supervision of Infants, Children, and Adolescents” (Green M., (ed.). 1994).

• When covered under the State plan (at the State's option) routine preventive and diagnostic dental services (for example, oral examinations, prophylaxis and topical fluoride applications, sealants, and x-rays) as described by the AAPD's current Reference Manual (Pediatric Dentistry, Special Issue, 1997-1998, vol 19:7, page 71-2).

Comment: One commenter noted that the language of this section is ambiguous in stating that the “State plan may not impose copayments, deductibles, coinsurance or other cost sharing with respect to well-baby/well child care services as defined by the State.” HCFA should clarify that no preventive service as defined by the Guidelines for Health Supervision III (including the appended Recommendations for Preventive Pediatric Health Care) and Bright Futures is subject to cost sharing, as was intended by the underlying statute.

Response: We agree with the commenter and have revised § 457.520(a) to be clearer that a State may not impose cost sharing on services that would ordinarily be considered well-baby and well-child care. As described in subpart D, Benefits, States may define well-baby and well-child services for coverage purposes. While this may provide States flexibility in determining the appropriate scope ofbenefits, such flexibility is not appropriate with respect to cost sharing which might deter appropriate utilization of covered services. Thus, we are specifying in § 457.520(a) that cost sharing may not be imposed on any covered services that are also within the scope of AAP well-baby and well-child care recommendations.

Comment: One commenter noted that there are differences between the discussion of this provision in the preamble (64 FR 60913) and in the regulations text (64 FR 60955). The commenter believed the provision as set forth in the regulations text is more clear.

Response: In this final rule, we are adopting the provisions regarding well-baby and well-child care as set forth in the regulations text at § 457.520, except that we have amended these provisions to clarify the scope of services to which the prohibition on cost sharing applies.

Comment: A number of commenters expressed concern that adolescent health care services are not specifically listed as well-baby and well-child care services exempt from cost sharing. Although the preamble notes that well-child care includes health care for adolescents, the commenters urged HCFA to make specific mention of this fact in the regulation. One commenter recommended that HCFA define adolescent health care services using the schedules from the American Medical Association's “Guidelines for Adolescent Preventive Services,” and the American College of Obstetricians and Gynecologists, “Primary and Preventive Health Care for Female Adolescents” as well as those of the American Academy of Pediatrics. Another commenter noted that there is no reason why a physical exam for a toddler should be exempt from cost-sharing requirements while an exam and related services for an adolescent are not.

Response: It is not necessary to add the term adolescent to the regulation because the term “child” as defined by the statute and regulation refers to enrollees under the age of 19 the cost-sharing rules set forth in this regulation apply to all children under age 19. Therefore, States cannot impose cost sharing on any well-child care services provided to an adolescent under the age of 19. In addition, the standard recommended by the AAP for routine physical exams specifically includes treatment of adolescents.

Comment: One commenter disagreed with the use of a specific immunization schedule because it may be difficult for States using employer-sponsored insurance to implement this requirement. The commenter recommended that we revise the regulation to state “Immunizations and related office visits as medically necessary.

Response: We are not accepting the commenter's suggestion because immunizations recommended by the Advisory Commission on Immunization Practices (ACIP) are generally accepted as being medically necessary. The State is responsible for assuring that an enrollee does not pay cost sharing for any immunizations recommended by ACIP.

Comment: One commenter recommended that the immunization schedule include updates.

Response: As proposed, § 457.520(b)(4) prohibits cost sharing for immunizations and related office visits as recommended by ACIP. We are retaining this language in the final regulation at § 457.520(b)(4) which also indicates that updates to these guidelines must be reflected in States cost-sharing policies.

Comment: One commenter urged that HCFA remove the term “routine physical examinations” from the list of well-baby and well-child care services. The inclusion of this term is confusing in this commenter's view because almost every office visit for children entails a “physical examination” as part of the evaluation and management component of the office visit. As an alternative, the commenter recommended using the language for well-baby and well-child care services as listed in § 457.10. Other commenters recommended that routine exams be specifically tied to professionally established periodicity schedules.

Response: We agree that our intent may have been unclear. We have revised § 457.520(b)(2) to provide that the well-baby and well-child routine physical exams, as recommended by the AAP's “Guidelines for Health Supervision III”, and described in “Bright Futures: Guidelines for Health Supervision of Infants, Children and Adolescents”, (which would include updates to either set of guidelines) may not be subject to cost sharing.

Comment: Several commenters stated that lab tests should not be exempt from cost sharing, especially given that lab tests are expensive and not always preventive. Since lab services are provided by a separate entity, outside of the office of the physician providing the well-baby and well-child care service, States should be given flexibility in determining whether to exempt lab services from cost sharing, particularly in managed care settings. One commenter requested that HCFA clarify the intention of the provisions excluding lab services from cost sharing. The commenter questioned if the exemption is limited to laboratory tests that are associated with the well-baby and well-child visit.

Response: We have revised the regulation text at § 457.520(b)(3) to indicate that States are required to exempt from cost sharing only those lab tests associated with the well-baby/well-child routine physical exams described in § 457.520(b)(2). We believe the exemption from cost sharing for these lab tests is consistent with the statutory intent that there is no cost sharing imposed on enrollees for well-baby and well-child care services. All other lab tests that are not routine and not part of a well-baby or well-child visit may be subject to cost-sharing charges consistent with the other cost-sharing provisions of this subpart.

Comment: Several commenters indicated their view that States should have the flexibility to determine how best to improve access to dental services. In their view, the prohibition of cost-sharing for dental services may discourage States from offering dental services under SCHIP because it is an optional benefit. One commenter recommended prohibiting States from imposing copayments, deductibles, coinsurance or other cost sharing for all covered dental services. This commenter indicated that the Medicaid program has clearly demonstrated that imposing costly, difficult, and risk shifting management procedures on providers severely limits participation in such programs and therefore severely restricts access to essential oral health care for this high risk, high need population. The commenter stated that, for example, if a child arrives in a dental office without the appropriate cost-sharing funds, the practitioner must either defer the needed service, enter into costly billing procedures, or waive the money due and such waivers previously have, on some occasions, been interpreted as insurance fraud. The commenter indicated that our policy may discourage practitioners from participating in the SCHIP program and result in problems of access to care for the children with the greatest need.

Response: The majority of separate child health programs offer dental benefits and do not impose cost sharing on preventive dental services. If States were to impose cost sharing on preventive benefits, due to their limited incomes, enrollees would only access services when needed and when services are most expensive. Almost all States have elected to provide at least some dental coverage in their Stateplans without cost sharing for preventive services. The cost-sharing exemption policy has not caused States to discontinue coverage of dental services thus far. In addition, we note that the cost-sharing exemption on well-baby and well-child care services is based upon section 2103(e)(2)of the Act, which provides that the State plan may not impose cost sharing on benefits for these preventive services. We have interpreted this statutory provision to support the cost-sharing exemption for routine preventive and diagnostic dental services.

6. Public Schedule (§ 457.525)

Section 2103(e)(1)(A) of the Act requires that the State provide a public schedule of all cost-sharing charges. We proposed that the public schedule contain at least the current SCHIP cost-sharing charges, the beneficiary groups upon whom cost sharing will be imposed (for example, cost sharing imposed only on children in families with income above 150 percent of the FPL), the cumulative cost-sharing maximums, and the consequences for an enrollee who fails to pay a cost-sharing charge. We also proposed that the State must make the public schedule available to enrollees at the time of enrollment and when the State revises the cost-sharing charges and/or cumulative cost-sharing maximum, applicants at the time of application, SCHIP participating providers and the general public. To ensure that providers impose appropriate cost-sharing charges at the time services are rendered, we proposed that the public schedule must be made available to all SCHIP participating providers. In this final rule, we have added § 457.525(a)(4) which indicates that the State must include in the public schedule, the mechanisms for making payments for required charges. We also added to § 457.525(a)(5) that the public schedule describe the disenrollment protections pursuant to § 457.570.

Comment: Several commenters recommended that States have the option to provide information in the public schedule that defines cumulative cost sharing as a percentage of income. The commenters requested that we clarify that States can defer responsibility for distributing the public schedule to all SCHIP providers to the managed care entities as part of their contractual obligations.

Response: States may define the cumulative cost-sharing maximum as a percentage of income in the public schedule and request that managed care entities distribute the public schedule to all SCHIP providers (although the State retains the responsibility that the entities involved make the schedule available to providers). However, we have modified the regulation at § 457.110(b)(2) to indicate that States must calculate the precise amount of the cumulative cost-sharing maximum (the dollar amount instead of a percentage of income) that applies to the individual enrollee's family at the time of enrollment (as well as at the time of re-enrollment) to maximize the usefulness of information provided to the family and to ensure uniform calculation of the amount, maximize the usefulness of the information, and make tracking easier.

Comment: One commenter urged HCFA to include language in the preamble that “applicants” and “enrollees” include adolescents (independent from other children in their family) and that information should be directed to them about any schedule of costs. The commenters noted that adolescents often seek care on their own, not only for services that they need on a confidential basis, but for other services as well. Unless they are aware of the charges they may encounter, and the services that do not require a copayment, they may be deterred from seeking care, in this commenter's view.

Response: Section 457.525(b) specifically requires States to provide a public schedule, which includes a description of the plan's current cost-sharing charges, to SCHIP enrollees at the time of application, enrollment, and when cost-sharing charges are revised. We have added a provision at § 457.525(b)(1) requiring that States provide SCHIP enrollees the public schedule at reenrollment after a redetermination of eligibility as well. This section also requires that cost-sharing charges be disclosed to SCHIP applicants at the time of application. SCHIP enrollees, by definition, are children under age 19. In most cases, this information will be given to family members due to the age of the child. However, we encourage States to provide information about cost sharing directly to adolescent applicants and enrolles when appropriate. We also encourage States to consider the range of applicants, enrollees and family members who might benefit from the provision of this information, including adolescents, and we encourage States to describe the plan's current cost-sharing charges in language that is easily understood and tailored to the needs of target populations, consistent with section 457.110.

Comment: One commenter suggested that the requirement to provide the public schedule to applicants may be overwhelming to both the program and the applicants. Enrollees are most interested in the information relating to the family's individual obligations.

Response: Section 2103(e)(1)(A) of the Act provides sufficient authority to require States to make a public schedule available, and to provide all interested parties with notice of cost-sharing obligation for the program. In addition, applicants should be given a chance to review the cost sharing structure prior to enrollment, so that the applicant will understand the potential costs of SCHIP and can make a reasoned choice as a health care consumer. This policy also aids in future tracking of the family's cost-sharing obligation.

Comment: One commenter recommended that HCFA require that the public schedule contain information about an enrollee's rights with respect to cost sharing, including the right to receive notice and make past due payments, as well as other protections established by the State in compliance with § 457.570.

Response: Section 457.525(a)(5) of this final rule requires that the public schedule include a description of the consequences for an enrollee who does not pay a cost-sharing charge. We are also revising this section to require States to discuss, as part of this description, the disenrollment protections it has established pursuant to § 457.570. Section 457.570 requires States to provide enrollees with an opportunity to pay past due cost sharing, as well as an opportunity to request a reassessment of their income, prior to disenrollment.

Comment: One commenter recommended that we require States to include detailed information about the cost-sharing schedule at each annual renewal and in the SCHIP application packet/pamphlet. Applications should also include information to notify participants of services that are subject to cost sharing.

Response: We have revised § 457.525(b)(1) to require that States also provide the public schedule at the time of a re-enrollment after a redetermination of eligibility. In addition, we note that § 457.525(a)(1) requires that the public schedule of cost-sharing requirements include information on current cost-sharing charges and the cumulative cost-sharing maximums. This information should specify the services or general category of services for which cost sharing is imposed and services that are exempt from cost sharing.

7. General Cost-Sharing Protection for Lower Income Children (§ 457.530)

At § 457.530, we proposed to implement section 2103(e)(1)(B) of the Act, which specifies that the State plan may only vary premiums, deductibles, coinsurance, and other cost-sharing charges based on the family income of targeted low-income children in a manner that does not favor children from families with higher income over children from families with lower income. We noted that this statutory provision and the implementing regulations apply to all cost sharing imposed on children regardless of family income.

Comment: One commenter requested that when considering the requirement that States not vary cost sharing based on the family income of the targeted low-income children in a manner that favors children from families with higher income over children from families with lower income, HCFA should consider the issue of disposable income. The commenter recommended that we should consider only the income the family receives above 100 percent of the FPL (disposable income). When applying a flat percentage assessment, the assessment will consume more of the lower-income family's disposable income than the disposable income of a higher-income family. The commenter cited the following example: A straight 3 percent assessment would consume 9 percent of the disposable income for a family at 150 percent of poverty but only 6.5 percent of the income for a family at 185 percent of poverty.

Response: We recognize that health care costs may consume a larger proportion of a lower income family's disposable income. Accordingly, at § 457.560(d), we provide for a lower cumulative cost-sharing maximum (2.5 percent) for cost sharing imposed on children in families at or below 150 percent of the FPL in part because of the higher proportionate consumption of disposable income at lower poverty levels. Also, in accordance with § 457.540(b), and section 2103(a)(1)(B) of the Act, copayments, coinsurance, deductibles and similar charges imposed on children whose family income is at or below 100 percent of the FPL may not be more than what is permitted under the Medicaid rules at § 447.52 of this part and the charges may not be greater for children in lower income families than for children in higher income families.

8. Cost-Sharing Protection to Ensure Enrollment of American Indians/Alaska Natives (§ 457.535)

Section 2102(b)(3)(D) of the Act requires the State plan to include a description of the procedures used to ensure the provision of child health assistance to targeted low-income children in the State who are Indians (as defined in section 4(c) of the Indian Health Care Improvement Act). To ensure the provision of health care to children from AI/AN families, we proposed that States must exclude AI/AN children from the imposition of premiums, deductibles, coinsurance, copayments or any other cost-sharing charges. For the purposes of this section, we proposed to use the definition of Indians referred to in section 2102(b)(3)(D) of the Act, which defines Alaska Natives and American Indians as Indians defined in section 4(c) of the Indian Health Care Improvement Act, 25 U.S.C. 1603(c). We also specified in the regulation that the State must only grant this exception to AI/AN members of Federally recognized tribes (as determined by the Bureau of Indian Affairs).

Comment: Several commenters requested that HCFA reconsider the AI/AN exemption. Many commenters noted that it is administratively burdensome (especially in States with small AI/AN populations) and expensive in light of the fact that a number of States have already negotiated contracts with health care entities that assume cost sharing for this population and application of the 10 percent limit on administrative expenditures. Many commenters recommended that we focus on technical assistance instead to assure that States are consulting with tribes. Some commenters were concerned that having no cost sharing for this group, but having it for other children in the program would single out AI/AN children in health care provider offices and facilities. Also, commenters believed our policy contradicts the statutory intent to prevent discrimination against children with lower family incomes. In their view, the elimination of cost sharing in these situations creates a different standard for a specific population group and may imply to both providers and families SCHIP enrollees that AI/AN children's parents cannot be relied upon to pay anything toward the costs of their health care. One commenter observed that if HCFA's reason for exemption is because AI/AN children are typically unable to pay cost sharing, then the exemption should apply to special needs children as well.

Response: Section 2102(b)(3)(D) of the Act requires that a State ensure the provision of child health assistance to targeted low-income children in the State who are Indians. In accordance with this statutory provision and to enhance access to child health assistance, we have specified that States may not impose cost sharing on this population. This exemption is consistent with section 2103(e)(1)(B) of the Act because this statutory provision prohibits States from imposing cost sharing based on the family income of targeted low-income children in a manner that favors children from families with higher income over children from families with lower income. The exemption from cost sharing for AI/AN children is not a variation of the cost sharing based on the family's income and is not a violation of section 2103(e)(1)(B). The cost-sharing exemption for AI/AN children is based upon the statutory requirement at section 2102(b)(3)(D), which requires particular attention to this population.

This cost-sharing exemption also reflects the unique Federal trust with and responsibility toward AI/ANs. The statute specifically singles out children who are AI/ANs and requires that States ensure that such children have access to care under SCHIP. The statute confirms that AI/AN children are a particularly vulnerable population, and that a requirement to pay cost sharing will act as a barrier to access to care for this population. Therefore, in order to operate a SCHIP program in compliance with section 2103(b)(3)(D), the only way to ensure access to AI/AN children is to exempt them from the cost-sharing requirements. In addition, absent this exemption for AI/AN children, these children may pursue services from the Indian Health Service (IHS) (where cost sharing is not required) without pursuing coverage under SCHIP or Medicaid. We disagree with the commenter's assertion that a similar exemption should be granted for children with special needs, there is no parallel statutory provision that requires States ensure access to this population. While the unique medical needs of this population are not insignificant, the AI/AN exemption is based on the Federal tribal relationship and responsibility for protection of this specific group. However, we do not believe there is sufficient rationale or authority for including special needs children under this exemption.

We further recognize that it may be administratively burdensome for some States to exempt this population if States are required to verify the status ofthe enrollee as Indians. However, States may rely on the beneficiary to self-identify their membership in a Federally-recognized tribe and self-identification would substantially reduce the administrative burden and associated costs to the State. Also, this exemption will not single out AI/AN children at providers' offices and facilities if the State requires the enrollee to self-identify at the time of enrollment and the State provides inconspicuous identification for these children so that providers know not to charge them cost sharing at the time the enrollee receives services.

Comment: One commenter asked HCFA to clarify that cost-sharing charges are not imposed by Tribal clinics or community health centers.

Response: Under § 457.535, the AI/AN population is exempt from cost sharing. IHS facilities and tribal facilities operating with funding under P.L. 93-638 (“tribal 638 facilities”) do not charge cost sharing to the AI/AN population.

Comment: Several commenters recommended that the States' costs incurred due to the AI/AN exemption should be reimbursed with 100 percent Federal funds.

Response: A State will be able to claim match for increased costs resulting from the AI/AN exemption at the State's enhanced matching rate. However, we do not have authority under title XXI to provide 100 percent FMAP for these costs and would therefore need a legislative change to do so.

Comment: Several commenters recommended that AI/AN enrollees be permitted to self-certify their AI/AN status if HCFA does not concur with the commenter's request to remove the AI/AN cost-sharing exemption.

Response: We agree and take note that we have revised the policy set forth in the preamble to the proposed rule. States may allow self-identification for the purposes of the AI/AN cost-sharing exemption. Self-identification is consistent with our policies that encourage States to simplify the application and enrollment processes.

Comment: One commenter suggested that we apply the AI/AN cost-sharing exemption to all Indians based on the definition referred to in section 2102(b)(3)(D). The commenter requested that we remove the provision in the proposed regulation at § 457.535 that would narrow this definition to “AI/AN members of a Federally recognized tribe.” The commenter stated that this definition of AI/AN children is more restrictive than that in the Indian Health Care Improvement Act, has no basis in title XXI and it is also inconsistent with the definition of Indian set forth in the consultation provisions at § 457.125(a), which expressly request that States consult with “Federal recognized tribes and other Indian tribes and organizations in the State * * *” The commenter indicated the view that there is little point in consulting with non-Federally recognized tribes about enrollment in SCHIP if the children of those tribes are not excluded from the premiums and cost sharing.

Response: Because the Federal/tribal relationship is focused only on AI/ANs who are members of Federally recognized tribes, this final rule only requires States to exempt from cost sharing AI/ANs who are members of Federally recognized tribes. With regard to the consultation requirements at proposed § 457.125(a), we note that, although the cost-sharing exemption is required only for AI/ANs who are members of a Federally recognized tribe, individuals from other tribes may be eligible for child health assistance under SCHIP. There are numerous issues other than cost sharing that are involved in designing and operating a program, and we believe that States should be open to consultation with all interested parties, including non-federally recognized tribes. As such, we have removed the consultation requirement from § 457.125 and encourage the participation of these groups in the public involvement process established by the State in accordance with the new § 457.120(c). Finally, we have modified the definition of American Indian/Alaska Native at § 457.10 to be consistent with the Indian Health Care Improvement Act, yet also comport more closely with the definition used in the Indian Self Determination Act (ISDEAA).

Comment: One commenter suggested that HCFA allow time for States to comply with this new requirement and not delay approval of State plans or plan amendments for the time it will take to change State law to implement this change.

Response: In a letter dated October 6, 1999, HCFA informed SCHIP State health officials that we interpret the SCHIP statute to preclude cost sharing on AI/AN children. Since October 1999, we have required States submitting State plan amendments to alter cost sharing to comply with the exemption in order to gain approval for these amendments. States that have not submitted such amendments have been given ample notice of this policy. We will expect all States to comply with the requirements of § 457.565(b), which implements the exemption of AI/AN targeted low-income children from cost sharing and comply immediately with this requirement upon the effective date of this regulation.

Comment: One commenter suggested that States with small AI/AN Indian populations be waived from the cost sharing exemption so they can continue their programs as implemented.

Response: We realize there is some concern about the administrative difficulties related to exempting AI/AN children from cost sharing in States with small AI/AN populations. However, as noted above, we will permit AI/AN applicants to self-identify at the time of enrollment for the purposes of the cost-sharing exemption. This policy minimizes the administrative burden on States.

Comment: Two commenters asked HCFA to clarify that, in States with SCHIP or Medicaid expansions involving AI/AN adults or entire families, the cost-sharing exemption be applied to AI/AN adults as well.

Response: In States with separate child health programs or Medicaid expansions that provide coverage to AI/AN adults or entire AI/AN families, the cost-sharing exemption only applies to children. If a State has imposed a premium on the family, the State must reduce the premium proportionately so that it applies to adults only. They also must not deny children access to coverage if the adults in the family cannot make premium payments. We are not restricting cost sharing for AI/AN adults because section 2102(b)(3)(D) directly refers to children only.

9. Cost-Sharing Charges for Children in Families at or Below 150 Percent of the Federal Poverty Line (FPL) (§ 457.540)

Section 2103(e)(3) of the Act sets forth the limitations on premiums and other cost-sharing charges for children in families with incomes at or below 150 percent of the FPL. Pursuant to section 2103(e)(3)(A)(I) of the Act, we proposed that in the case of a targeted low-income child whose family income is at or below 150 percent of the FPL, the State plan may not impose any enrollment fee, premium, or similar charge that exceeds the charges permitted under the Medicaid regulations at § 447.52, which implement section 1916(b)(1) the Act. Section 447.52 specifies the maximum monthly charges in the form of enrollment fees, premiums, and similar charges, for Medicaid eligible families.

Section 2103(e)(3)(A)(ii) provides that copayments, coinsurance or similar charges imposed on children in families with income at or below 150 percent of the FPL must be nominal, as determined consistent with regulations referred to in section 1916(a)(3) of the Act, withsuch appropriate adjustment for inflation or other reasons as the Secretary determines to be reasonable. The Medicaid regulations that set forth these nominal amounts are found at § 447.54. For children whose family income is at or below 100 percent of the FPL, we proposed that any copayments, coinsurance, deductibles or similar charges be equal to or less than the amounts permitted under the Medicaid regulations at § 447.54. For children whose family income is at 101 percent to 150 percent of the FPL, we proposed adjusted nominal amounts for copayments, coinsurance, and deductibles to reflect the SCHIP enrollees ability to pay somewhat higher cost sharing. We proposed that the frequency of cost sharing meet the requirements set forth in proposed § 457.550.

We also proposed that the cost sharing imposed on children in families with incomes at or below 150 percent of the FPL be limited to a cumulative maximum consistent with proposed § 457.560. Specifically, we proposed that total cost sharing imposed on children in this population be limited to 2.5 percent of a family's income for a year (or 12 month eligibility period).

Comment: One commenter questioned if the cost-sharing limits at §§ 457.540, 457.545, 457.550, 457.555 and 457.560 apply to out-of-network cost-sharing charges. The commenter recommended that the limits only apply to services delivered through the network participating providers. If not, the commenter argued that States cannot effectively use managed care to control costs and will be unable to develop effective partnerships with employer-sponsored health insurance programs to provide SCHIP services.

Response: If an enrollee receives services outside of the network that were not approved or authorized by the managed care entity (MCE) to be received outside of the network, then the services are considered non-covered services and the enrollee may be responsible for related cost-sharing charges imposed (other than in the case of emergency services provided under § 457.555(d)) irrespective of the limits established under the above referenced sections. If, however, the services are authorized by the MCE and provided by an out-of-network provider, the cost-sharing limits of this subpart apply. A State must ensure enrollees access to services covered under the State plan, but a State has discretion over whether to use a fee-for-service or a managed care arrangement.

Comment: A couple of commenters observed that the premium limits as set forth in the Medicaid regulations at § 447.52 are unreasonably low, since these cost-sharing provisions and limits have not been updated since the 1970s. These commenters proposed that we use a percentage (of payment) to set these amounts instead of a flat dollar amount.

Response: Section 2103(e)(3)(A)(I) provides that States may not impose enrollment fees, premiums or similar charges that exceed the maximum monthly charges permitted, consistent with the standards established to carry out section 1916(b)(1) of the Act. Permitting States to charge higher premiums on families with incomes at this level of poverty would be inconsistent with the statute.

Comment: One commenter suggested that the rule and preamble explicitly address the cost sharing treatment of children in families below the Federal Poverty Level. They noted that, in States that have retained the resource test for children in Medicaid, significant numbers of children below poverty will be enrolled in separate child health programs due to excess assets. This commenter recommended that § 457.540 be revised to reflect the fact that some adolescents under 100 percent of the FPL may be receiving SCHIP services until they are fully phased into regular Medicaid and that protections must apply to these children as well.

Response: Section 457.540(b) of the proposed regulation addresses the need for lower cost-sharing limits for cost sharing imposed on all children below 100 percent of the FPL. This section limits cost sharing to the uninflated Medicaid cost-sharing limits permitted under § 447.54 of this chapter. Section 2103(e)(3)(A)(I) limits premiums, enrollment fees, or similar charges to the maximums permitted in accordance with section 1916(b)(1) of the Act. In addition, because the definition of “child” includes adolescents under the age of 19, there is no need to revise this section. We have retained this proposed provision in the final regulation. However, it should be noted that we have added paragraphs (d) and (e) to § 457.540. These requirements were originally part of § 457.550, which has been removed to improve the format of the regulation.

Comment: One commenter disagreed with the separate grouping, relative to cost sharing, for SCHIP enrollees under 100 percent of the FPL and the application of the Medicaid cost-sharing limits to this population. The commenter noted that the proposal is beyond the statute (the statute only refers to two tiers—above 150 percent of the FPL and at or below 150 percent of the FPL) and that the monetary difference between the SCHIP schedule applicable to 101 percent to 150 percent of the FPL and the Medicaid cost-sharing schedule is minimal. The commenter noted that the cost to States to create a program for this new income level is very significant. The commenter argued that the Medicaid cost-sharing requirements proposed for SCHIP enrollees under 100 percent FPL were developed two decades ago and have no connection to current health care costs or program changes. According to this commenter, creating this new tier of eligible SCHIP enrollees does not seem to comport with the flexibility provided States in the Congressional debate on SCHIP, or written in title XXI.

Response: Section 2103(e)(3)(A)(ii) of the Act specifies that the State plan may not impose “a deductible, cost sharing, or similar charge that exceeds an amount that is nominal (as determined consistent with the regulations referred to in section 1916(a)(3) of the Act), with such appropriate adjustment for inflation or other reasons as the Secretary determines to be reasonable.” The Secretary has the discretion to determine the increases to the Medicaid cost-sharing limitations that are reasonable and under this authority the Secretary has determined that it is not reasonable for States to impose cost sharing above the Medicaid limitations contained in § 447.54 for children with family incomes that are below the Federal poverty line. As noted in the comment above, children at this income level who are eligible for separate child health programs typically reside in States that have retained the resource test for children in Medicaid, and may be well below 100 percent of the FPL. In this case, even small increments in cost sharing may impact the ability to access services.

10. Cost Sharing for Children in Families Above 150 Percent of the FPL (§ 457.545)

Section 2103(e)(3)(B) mandates that the total annual aggregate cost sharing with respect to all targeted low-income children in a family with income above 150 percent of the FPL not exceed 5 percent of the family's income for the year involved. The proposed regulation provided that the plan may not impose total premiums, enrollment fees, copayments, coinsurance, deductibles, or similar cost-sharing charges in excess of 5 percent of a family's income for a year (or 12 month eligibility period). We have deleted this section because it repeats the requirements already stated in § 457.560(c). Please see the comments and responses at § 457.560(c) for further discussion.

11. Restriction on the Frequency of Cost-Sharing Charges on Targeted Low-Income Children in Families at or Below 150 Percent of the FPL (§ 457.550)

Section 2103(e)(3)(A)(ii) of the Act specifies that the State plan may not impose a deductible, cost sharing, or similar charge that exceeds an amount that is nominal as determined consistent with regulations referred to in section 1916(a)(3) of the Act, “with such appropriate adjustments for inflation or other reasons as the Secretary determines to be reasonable”. We proposed to adopt the Medicaid rule at § 447.53(c) that does not permit the plan to impose more than one type of cost-sharing charge (deductible, copayment, or coinsurance) on a service. We also proposed that a State may not impose more than one cost-sharing charge for multiple services provided during a single office visit.

We also proposed to adopt the Medicaid rules at § 447.55 regarding standard copayments. Specifically, we proposed to provide that States can establish a standard copayment amount for low-income children from families with incomes from 101-150 percent FPL for any service. We proposed to expand upon the Medicaid rules and allow States to provide a standard copayment amount for any visit. Similar to the provisions at § 447.55 that allow a standard copayment to be based upon the average or typical payment of the service, our proposed provision would allow a State to impose a standard copayment per visit for non-institutional services based upon the average cost of a visit up to the copayment limits specified at proposed § 457.555(a), on these families.

Comment: A few commenters asked if States can still charge an enrollment fee. HCFA should clarify that States can charge both an enrollment fee for SCHIP and copayments for services, provided aggregate and individual dollar limits on cost sharing are observed.

Response: States can charge an enrollment fee for families at or below 150 percent FPL as long as the enrollment fee does not exceed the maximums specified in § 457.540(a) for children in families at or below 150 percent of the FPL and does not exceed the cumulative cost-sharing maximum in accordance with § 457.560(d) (2.5 percent of a family's income for a year or length of the child's eligibility period). For enrollment fees imposed on children in families with income above 150 percent of the FPL, enrollment fees and other cost sharing are limited to the cumulative cost-sharing maximum specified in § 457.560(c) (5 percent of the enrollee's family income for a year or the length of the child's period of eligibility). The restriction on imposition of one type of cost sharing in this section applies only to copayments, deductibles, and coinsurance or similar charges.

Comment: One commenter strongly supported the provision of the proposed rule that prohibits imposition of more than one copayment for multiple services provided during a single office visit. The commenter noted that this is a key issue for adolescents and that adolescents seek a variety of health care services on their own and seek to do so on a confidential basis (for example, diagnosis and treatment for a sexually transmitted disease). The commenter recommended that the preamble (or regulation) clarify whether there can be only one copayment required for a single office visit (for example, a $5.00 copayment for the visit) and whether the copayment must cover any associated lab tests, diagnostic procedures, and prescription drugs, or whether any additional copayments can be required. The commenter urged that HCFA make clear that only one copayment per visit may be required for all services associated with the single visit.

One commenter opposed the prohibition on imposing more than one cost-sharing charge for multiple services provided during a single office visit. In the commenter's view, cost sharing should relate to the provision of services rather than a visit. The commenter noted that CPT IV codes for physicians do not bundle multiple physicians or multiple services into a single visit. In this commenter's view, the proposed rule is also more restrictive than the current Medicaid provisions, which tie cost sharing to services, not to visits. The commenter argued that this added restraint on cost sharing is unnecessary because SCHIP enrollees are already protected from excessive charges by the overall cost-sharing caps and the limits on copayments.

Response: Section 457.550(b) (now § 457.540(e)) specifies that States cannot impose more than one copayment for multiple services furnished during one office visit. Thus, the copayment must cover any associated lab tests and diagnostic procedures. Only one copayment per visit may be required for all services delivered during the single visit. Lab tests performed at another site or prescription drugs obtained at a pharmacy may be subject to additional copayments. While the commenter notes that this is more restrictive than Medicaid, under Medicaid a provider cannot deny services to an enrollee if he or she cannot pay the associated copayment. SCHIP providers can deny services to enrollees under these circumstances. The per visit cost-sharing limit is intended to prevent access problems for SCHIP enrollees.

Comment: Several commenters requested that § 457.550(b) not apply to dental services or vision services because they are benefits that are defined by each individual service. In these commenters' view, limiting the frequency of cost sharing jeopardizes the State's ability to contract with many participating dental providers and limits the provision of needed dental services for SCHIP enrollees.

Response: The majority of State child health programs offer coverage for dental services and we believe this provision will not adversely affect State coverage of these services. In addition, provider participation is more likely to be influenced by States' payment rates than by cost sharing from enrollees. Once again, we believe it is important that the cost sharing on enrollees at or below 150 percent of the FPL be nominal in order to encourage enrollees to access vision and dental services before more expensive treatment is required.

Comment: One commenter indicated that § 447.550(b) should state that “any copayment that the State imposes under a fee for service system may not exceed $5.00 per visit, regardless of the number of services furnished during one visit.” Because the commenter assumes that the provider will seek the highest allowable copayment, for clarity, the rule should simply state that $5.00 is the maximum allowable per copayment visit. Section 457.550(b) is redesignated as § 457.540(e).

Response: We have modified the regulation to clarify that the provider can only collect up to the maximum amount allowed by the State based on the total cost of services delivered during the office visit. The provider cannot charge copayments in excess of what the State permits under the State plan.

Comment: One commenter pointed out an error in paragraph (c) of § 457.550, which refers to the maximum copayment amounts specified in paragraphs (b) and (c) of this section. The reference should be to § 457.555 (b) and (c).

Response: We agree with the commenter and have made these corrections to the final regulation text (§ 457.550(c) has been redesignated as § 457.555(e)). In addition, we have revised the reference to include subsection (a) as well.

12. Maximum allowable cost-sharing charges on targeted low-income children between 101 and 150 percent of the FPL (§ 457.555).

Section 2103(e)(3)(A)(ii) of the Act specifies that for children in families with incomes below 150 percent of the FPL, the State plan may not impose a deductible, cost sharing, or similar charge that exceeds an amount that is nominal as determined consistent with regulations referred to in section 1916(a)(3) of the Act, “with such appropriate adjustment for inflation or other reasons as the Secretary determines to be reasonable”. We proposed provisions regarding maximum allowable cost-sharing charges on targeted low-income children at 101 to 150 percent of the FPL that mirror the provisions of §§ 447.53 and 447.54 but are adjusted to permit higher amounts.

Specifically, for noninstitutional services provided to targeted low-income children whose family income is from 101 to 150 percent we proposed the following service payment and copayment maximum amounts for charges imposed under a fee-for-service system:

Total cost of services provided during a visitMaximum amount chargeable to enrollee
$15.00 or less $1.00
$15.01 to $40 2.00
$40.01 to $80 3.00
$80.01 or more 5.00

We proposed to set a maximum per visit copayment amount of $5.00 for enrollees enrolled in managed care organizations. In addition, we proposed to set a maximum on deductibles of $3.00 per month per family for each period of SCHIP eligibility. We noted that, if a State imposes a deductible for a time period other than a month, the maximum deductible for that time period is the product of the number of months in the time period by $3.00. For example, the maximum deductible that a State may impose on a family for a three-month period is $9.00.

We also proposed, for the purpose of maximums on copayments and coinsurance, that the maximum copayment or coinsurance rate relates to the payment made to the provider, regardless of whether the payment source is the State or an entity under contract with the State.

With regard to institutional services provided to targeted low-income children whose family income is from 101 to 150 percent of the FPL, we proposed to use the standards set forth in the Medicaid regulations at § 447.54(c). Accordingly, we proposed to require that for targeted low-income children whose family income is at or below 150 percent of the FPL, the State plan must provide that the maximum deductible, coinsurance or copayment charge for each institutional admission does not exceed 50 percent of the payment made for the first day of care in the institution.

We proposed to allow States to impose a charge for non-emergency use of the emergency room up to twice the nominal charge for noninstitutional services provided to targeted low-income children whose family income is from 101 to 150 percent of the FPL. In § 457.555(d), we further proposed that States must assure that enrollees will not be held liable for additional costs, beyond the specified copayment amount, associated with emergency services provided at a facility that is not a participating provider in the enrollee's managed care network.

We realized that the regulation text as proposed regarding the limit on cost sharing related to emergency services was not clear. Therefore, we have added to § 457.555(a) that the cost-sharing maximums provided in this section apply to non-institutional services provided to treat an emergency medical condition as well. We also clarified in paragraph (c) that any cost sharing the State imposes for services provided by an institution to treat an emergency medical condition may not exceed $5.00. We also removed proposed paragraph (d), because this requirement is already included in § 457.515(f)

Comment: One commenter suggested that copayments and deductibles for families with incomes over 150 percent of the FPL be subject to the same limits that apply for families with incomes 101 to 150 percent of the FPL, noted in § 457.555 (a) and (b).

Response: The limitations proposed in § 457.555 (a) and (b) implement section 2103(e)(3)(A)(ii)of the Act. This section of the Act only applies to cost sharing imposed on targeted low-income children in families at or below 150 percent of the FPL. With respect to targeted low-income children in families above 150 percent of the FPL, the statute explicitly sets forth different cost-sharing provisions at 2103(e)(3)(B) and permits States to impose cost sharing that is only subject to the 5 percent cumulative cost-sharing maximum. Therefore, we do not have the statutory authority to apply these limits to cost sharing on children in families with incomes above 150 percent of the FPL.

Comment: One commenter encouraged HCFA to make the maximum allowable cost-sharing charges consistent with Medicaid. The commenter noted that a family with an income at or below 150 percent of the FPL enrolled in SCHIP has the same disposable income as a family with an income at or below 150 percent of the FPL in Medicaid, and therefore should not be expected to absorb a higher cost-sharing limit. Also, in this commenter's view, because the family may move from one program to another, there should be consistency in cost sharing.

Another commenter stated that the cost-sharing limits in this section should have been based on the Medicaid maximums increased by the actual inflation experienced since the promulgation of the original Medicaid regulations.

Response: Section 2103(e)(3)(ii) of the Act limits the copayments, deductibles, or similar charges imposed under SCHIP, for families with incomes at or below 150 percent of the FPL, to Medicaid cost-sharing amounts “with such appropriate adjustments for inflation or other reasons as the Secretary determines to be reasonable.” The cost-sharing amounts under Medicaid (found at 42 CFR 447.52) were originally established in regulation in 1976 and have never been adjusted for inflation. Therefore, using the discretion permitted under the statute, we inflated the schedule for SCHIP for cost sharing imposed on enrollees whose income is from 101 to 150 percent of the FPL. In doing so, we looked at both the general inflation rate and the level of need in the population at issue in reference to Medicaid recipients. Because children in families with incomes below the poverty line are more closely tied to the traditional Medicaid population, we have not inflated the Medicaid cost sharing limits found at § 447.52 for SCHIP enrollees with incomes at or below 100 percent of the FPL. We also note that under Medicaid, States cannot impose copayments, deductibles, and coinsurance on children under the age of 18. Therefore, children under the age of 18 who become eligible for the Medicaid program should not be subject to any copayments, deductibles or similar charges in accordance with § 447.53 of the Medicaid regulations. The SCHIP statute, however, clearly contemplates and permits the application of cost-sharing to SCHIP enrollees.

Comment: One commenter supported the higher cost sharing for non-emergency use of the emergency room. The commenter believes in promoting the concept of the medical home andencouraging families to receive their children's care in that context.

Response: We appreciate the support of the commenter and also note that the policy, by only permitting twice the usual copayment amount for non-emergency use of the emergency room, protects the lower income populations served by SCHIP from having to pay excessive cost sharing if they find they can only access services at an emergency room. At the same time, it encourages enrollees to receive non-emergency services outside of an emergency room setting.

We realized that the proposed regulation text was not clear regarding the limit on cost sharing related to emergency services. Therefore, we added to section § 457.555(a) that the maximums provided in this section apply to non-institutional services provided to treat an emergency medical condition as well. We also clarified in paragraph (c) that any cost sharing the State imposes on services provided by an institution to treat an emergency medical condition may not exceed $5.00. Finally, we removed paragraph (d) from this section, because the requirement is already included in § 457.515(f).

Comment: Several commenters were concerned about the language in § 457.995(c)(2) which prohibits patients from being held responsible for any additional costs, beyond the copayment amount specified in the State plan, that are associated with emergency services provided by a facility that is not a participating provider in the enrollee's managed care network.

Response: With respect to the issue of additional costs for out-of-network emergency services, we believe that any costs associated with evaluating and stabilizing a patient in an out-of-network facility in a manner consistent with the cost-sharing restrictions in this regulation at § 457.555(d) must be worked out between the State and the managed care entity. Given the nature of the circumstances that may necessitate emergency services, enrollees may not be able to choose their place of care. Thus, the regulations do not allow additional cost sharing to be imposed on the beneficiary for emergency services including those provided out-of-network as described in § 457.515(f)(1) of this final regulation.

Comment: Two commenters asked that we clarify the interpretation of the phrase at § 457.555 (a)(3) and (b) “directly or through a contract”, with regard to payment made by the State. This commenter interpreted the phrase to mean that when the State operates SCHIP through employer-sponsored health plans, States would be expected to determine the rates paid by those health plans to hospitals and other providers and apply the standards cited in this section to determine allowable cost-sharing limits. The commenter asserted that, if this is HCFA's expectation, these requirements will make it difficult for States to implement SCHIP programs utilizing employer-sponsored health insurance since the State is not the purchaser of health care services in these cases and does not have a legal basis for accessing confidential or proprietary information, such as rates paid by plans to participating providers. The commenter recommended that States that use employer-sponsored insurance be exempt from the requirements proposed of § 457.555 (a)(3) and (b) since these requirements are likely to dissuade many employers from participating in SCHIP.

Response: Any State that contracts with another entity to provide health insurance coverage under the SCHIP program is paying for services through a contract. If a State subsidizes SCHIP coverage other than through a contract, such as in a premium assistance program, the State is still responsible for ensuring that cost-sharing charges to enrollees in such plans comply with this regulation. We recognize that this might require some additional steps but it is important to provide these protections to all SCHIP enrollees uniformly. States, as part of any contract with a health insurer, should request the payment rate information to assure that cost sharing being imposed by the insurer does not exceed the amounts in this section. We are also revising § 457.555(b) to specify that copayments for institutional services cannot exceed 50 percent of the payment the State would have made under the Medicaid fee-for-service system for the service on the first day of institutional care. As previously discussed, employer-sponsored insurance is subject to the same cost-sharing limits as all separate child health programs. This rule applies to both managed care and premium assistance programs.

Comment: One commenter urged HCFA to include language in the preamble to underscore that the philosophy and structure of managed care delivery systems make unnecessary the use of cost sharing to control utilization. HCFA should encourage States to set lower maximum allowable cost-sharing amounts for institutional services.

Response: States have discretion under 2103(e) to impose cost sharing up to the limits established in the statute and in this regulation. We note that many studies have shown that cost sharing does impact utilization in managed care delivery systems. We also note that 50 percent of the cost of the first day of care in an institution may be expensive for families below 150 percent of the FPL. We encourage States to set reasonable limits that take into consideration the income level of these families.

Comment: One commenter supported limiting copayments per inpatient hospital admission, but noted that the current proposal is based on each institutional admission. In this commenter's view, this policy has the potential to promote early release and frequent readmissions that could be detrimental to a child's health. The commenter suggested that cost sharing for institutional admissions be based on a period of time or some other criteria in order to prevent potential inappropriate releases.

Response: Section 2103(e)(3)(A)(ii) limits the imposition of cost sharing to the nominal amounts consistent with regulations referred to in section 1916(a)(3) of the Act. Proposed § 457.555(b) mirrors § 447.54 of the Medicaid regulations regarding institutional services with some clarification for its application in the SCHIP context. We have not found data that supports a pattern of early discharge exists in the Medicaid program due to this provision. Therefore, we will adopt the regulation as proposed, consistent with section 2103(e)(3)(A)(ii) of the Act.

Comment: One commenter indicated that, with regard to institutional services, the proposed regulation states that the cost sharing cannot exceed 50 percent of the payment the State makes directly or through contract for the first day of care in that institution. The commenter stated that, in a managed care context, the State does not pay a per day amount to the managed care entity (MCE). The commenter requested that HCFA clarify how this institutional cost-sharing limitation is to be interpreted in the MCE setting.

Response: We have clarified § 457.555(b) to indicate that cost sharing may not exceed 50 percent of the payment the State would have made under the Medicaid fee-for-service system for the first day of care in that institution. We believe this remains consistent with the legislative intent to keep cost sharing at nominal levels in accordance with Medicaid.

Comment: One commenter observed that the imposition of copayments for emergency room visits that mirror copayments for other services, includingphysician or clinic visits ($5.00 copayment) provides a negative incentive. States should have the ability to impose a differential copayment for emergency visits, even if it is minimally higher than that imposed for visits to a primary health care provider.

A commenter stated that, in order to control non-emergency utilization of the emergency room and to smooth the transition of families from SCHIP to commercial insurance coverage, States should be permitted flexibility in establishing the maximum copayment amount for such services and notes that, in some States, amounts up to $25.00 have been permissible. One commenter noted that without differential copayments for emergency room visits, the incentives are aligned to promote use of a primary care model over unimpeded access to emergency rooms.

Response: We have revised § 457.555(a) of the final regulation to specifically require that services provided to an enrollee for treatment of an emergency medical condition shall be limited to the cost schedule under (a) of that section with its maximum of $5.00. We also note that States are not required to charge the maximum amount permitted in § 457.555(a) for a physician service and may choose to impose a lower amount than $5.00 on physician services, providing the incentive for the beneficiary to access services at the physician level before using the emergency room. In addition, § 457.555(c) permits a maximum amount of $10.00 for nonemergency use of the emergency room, which may also create incentives to use the primary health care provider when appropriate.

For the targeted low-income child in a family with income above 150 percent of the FPL, States may impose a higher amount than $5.00 for emergency services provided in an emergency room as long as the family has not paid cost sharing that exceeds the cumulative cost-sharing maximum of 5 percent of the family's income for a year. The regulation only requires that States limit copayments for emergency services provided in the emergency room to the schedule in § 457.555(a) for those children in families with income from 101 to 150 percent of the FPL, and limit such copayments consistent with § 457.540(b) for those children in families with incomes below 100 percent of the FPL.

Comment: A commenter recommended that no arbitrary amount ($10.00) be used as the maximum copayment for non-emergency use of the emergency room. In this commenter's view, if such an amount is included in this section, it should be indexed for inflation.

Response: The maximum copayment amount is based on the statutory requirement that cost sharing for families at or below 150 percent of the FPL must be in accordance with the Medicaid rules. The amount of $10.00 in § 457.555(c) is consistent with § 447.54(b), which allows a waiver of the nominal amount in the Medicaid regulation for nonemergency services furnished in a hospital emergency room up to double the maximum copayment amounts. We have chosen a set limit for the SCHIP enrollees in families with income from 101 to 150 percent of the FPL in lieu of the complicated waiver requirement in Medicaid.

Comment: A commenter agreed that non-emergency use of emergency facilities should be limited. However, the commenter is concerned about doubling the noninstitutional copayment amount permitted when an enrollee uses an emergency room for non-emergency services. The commenter noted that, in many rural areas, access to non-emergency facilities may not be readily available, and argued that families should not be penalized (charged double) when alternative services are not available.

Response: Proposed § 457.735 (now § 457.495) of the regulation requires the State plan to include a description of the methods it uses for assuring the quality and appropriateness of care provided with respect to access to covered services. States must ensure that an adequate number of providers available so families do not need to seek routine treatment in an emergency room.

Comment: Several commenters asked that the regulation clarify that States should use the prudent layperson standard proposed at § 457.402(b) in the assurance that cost sharing for emergency services to managed care enrollees would not differ based on whether the provider was in the managed care network.

Response: We agree that the prudent layperson standard should be applied to this section. In the proposed rule, we defined emergency services at § 457.402(c), to include the evaluation or stabilization of an emergency medical condition. Because this definition is relevant to the entire regulation, we have moved the definitions of emergency services and emergency medical condition to § 457.10. Section 457.10 now defines emergency medical condition as a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that a prudent layperson, with an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in jeopardizing the individual's health (or in the case of pregnant women, the health of the woman or her unborn child), serious impairment of bodily function or serious dysfunction of any bodily organ or part.

Comment: One commenter suggested that HCFA issue additional guidance on what, if any, sanctions for non-payment of cost sharing can be exercised.

Response: States are allowed flexibility when proposing sanctions. HCFA will review the State sanctions as part of the State plan and consider proposed sanctions on a case-by-case basis. We will require that States, in accordance with § 457.570(b), provide an opportunity for the targeted low-income child's family to have its income reevaluated when the family cannot meet its cost-sharing obligations. The family income may have dropped to a point where the child qualifies for Medicaid, or where the child is in the category of SCHIP enrollees that is subject to lower (or no) cost sharing.

13. Cumulative Cost-Sharing Maximum (§ 457.560)

Section 2103(e)(3)(B) of the Act provides that any premiums, deductibles, cost sharing or similar charges imposed on targeted low-income children in families above 150 percent of the FPL may be imposed on a sliding scale related to income, except that the total annual aggregate cost sharing with respect to all targeted low-income children in a family may not exceed 5 percent of the family's income for the year involved. We refer to this cap on total cost sharing as the cumulative cost-sharing maximum.

We proposed two general rules regarding the cumulative cost-sharing maximums. First, a State may establish a lower cumulative cost-sharing maximum than those specified in § 457.560(c) and (d). Second, a State must count cost-sharing amounts that the family has a legal obligation to pay when computing whether a family has met the cumulative cost-sharing maximum. We proposed to define the term “legal obligation” in this context as liability to pay amounts a provider actually charges the family 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.

We proposed that for children in families above 150 percent of the FPL, the plan may not impose premiums,enrollment fees, copayments, coinsurance, deductibles, or similar cost-sharing charges that, in the aggregate exceed 5 percent of total family income for a year (or 12 month eligibility period).

We proposed that for targeted low-income children in families at or below 150 percent of the FPL, the plan may not impose premiums, deductibles, copayments, co-insurance, 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.

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 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.”

Response: States may 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 have not adopted the commenters' suggestion because this could result in families being legally obligated to pay cost-sharing amounts in excess of the cumulative maximum.

Comment: One commenter asked if this provision means that for any and all out-of-network health services, (provider charges in excess of the amount paid by the health plan) must count toward the family's cumulative cost-sharing maximum. The commenter noted that no private health plans work this way, especially employer-sponsored plans. According to this commenter, a requirement to recognize out-of-network provider charges would greatly complicate this process by requiring States to verify that provider bills submitted by families as evidence of having reached the maximum were not in fact paid by the health plan in which the children are enrolled.

Response: If an enrollee has been authorized by his or her health plan to receive out-of-network services, then the associated charges must comply with these rules and be counted toward the cumulative cost-sharing maximum. In addition, an enrollee's costs incurred for emergency services (as defined at § 457.10) furnished at an out-of-network provider also count toward the cumulative cost-sharing maximum. The regulation does not require coverage of out-of-network services that are not authorized, except for emergency services. Therefore, States are not required to count costs of unauthorized services received out-of-network toward the cumulative cost-sharing maximum.

Comment: One commenter recommended that States be able to retain the flexibility to define the year for purposes of cost sharing as the insurance benefit year for group insurance rather than an individual family's eligibility period as proposed. In this commenter's view, the use of individual family eligibility periods would be an “administrative nightmare.”

Response: States may apply the cumulative cost-sharing limits based on the insurance benefit's 12 month period for group insurance. In that case, for families that enroll during the benefit year, the State must calculate the cumulative cost-sharing maximum based on the income of the family only for the period of time the beneficiary is actually enrolled within that benefit year.

Comment: One commenter noted that these rules allow a State to count cost-sharing amounts that the family has a legal obligation to pay. The commenter indicated that as section 330 Public Health Service grantees, Federally qualified health care centers (FQHCs) are required to prepare a schedule of fees or payments for incomes at or below those set forth in the most recent FPL. They also noted that health centers are obligated to charge patients on a sliding scale basis if their income is between 100 and 200 percent of the FPL. Therefore, the commenter stated that, based on this proposed rule, health center patients will not receive cost-sharing credits for that portion of the copayments that the health center is expected to waive under a sliding fee schedule policy.

The commenter requested that HCFA provide an exception to consider SCHIP patients served in FQHCs as having paid the full highest possible copay cost of the copayment in calculating the cumulative cost-sharing maximum, whether or not they were charged this amount. In addition, the commenter indicated that SCHIP plans should be instructed that, if a FQHC normally charges its patients with incomes between 100 and 200 percent of the FPL on a sliding scale basis, it should not be required or expected to apply a cost-sharing charge to a SCHIP patient that would exceed its sliding scale discount. For example, if the health center charge for a service is $100.00, but it only charges $50.00 for those with incomes between 150 percent and 200 percent of the FPL, it should only charge 50 percent of the allowable copayment for patients covered under SCHIP, in this commenter's view.

Response: States are only obligated to count towards the cumulative cost-sharing maximum the amounts that a patient has a legal obligation to pay. Therefore, States may not count the amounts that the health center covers towards the maximum. The State is only obligated to count what the SCHIP patient is actually charged by the health center for purposes of the cumulative cost-sharing maximum. However, we do agree that the FQHC should not charge the enrollee more than is permissible under the FQHC's sliding scale, nor should it charge the enrollee more than is permissible under the SCHIP program.

Comment: Several commenters requested that we reconsider the 2.5 percent cumulative cost-sharing maximum. They raised specific concerns regarding the 2.5 percent cumulative cost-sharing maximum, including: 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 § 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 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 such requirements are virtually impossible to implement in a program that subsidizes employer sponsored insurance.

Response: We disagree with the commenters. A lower cost-sharing maximum on children is necessary in order for States to comply with the requirements at section 2103(e)(2)(B), which require 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 withhigher incomes over children in families with lower incomes. If the State does not want to administer two caps, it does have the option to place the 2.5 percent cap or a flat amount equal to 2.5 percent of the family's income on the entire enrollee population that is subject to cost sharing. This should have a minimal impact on the amount of cost sharing States will impose; particularly in light of the George Washington University study, as indicated by the commenter, which found that it is rare for families to reach the 5 percent cap at all. The State may also choose to impose premiums instead of copayments, coinsurance or deductibles, so that tracking of cost sharing is not necessary.

Comment: One commenter noted that the separate calculation requirement applied to each beneficiary's family to ensure that the five percent cost-sharing limitation is met is unwieldy and expensive. In this commenter's view, it is unlikely that opportunities for participation in premium assistance programs will be aggressively pursued. The commenter also asserted that our policy eliminates the opportunity for children in SCHIP to be enrolled in premium assistance programs.

Response: For targeted-low income children in families with income greater than 150 percent of the FPL, section 2103(e)(3)(B) requires States to ensure that cost sharing does not exceed 5 percent of a family's income. The statute does not exempt States from this cap if they provide child health assistance through an employer-sponsored insurance program. Therefore, we have not included any exceptions to the rules for States utilizing premium assistance programs.

Comment: One commenter stated that the regulation goes beyond legislative intent by requiring that copayments and deductibles be included in the computation of the maximum cost sharing for a family with income above 150 percent of the FPL. In support of this point, the commenter noted that section 2103(e)(3)(B) of the Social Security Act limits “enrollment fees, premiums, or similar charges” to five percent of the family's income. The commenter asserted that deductibles and copayments are not “similar charges,” because they are not prepayments for benefits coverage; rather, they are payments made to treating providers at the time of service delivery. By requiring States to include deductibles and copayments in the calculation of the maximum, HCFA has created major administrative problems, especially for the majority of states that are using HMOs or other insurers in this commenter's view. The commenter recommended that we limit the calculation of the maximum amount to “enrollment fees, premiums and similar charges”. The State merely has to make sure it sets a premium below the maximum of 5 percent of family income.

Response: Section 2103(e)(3)(B) of the Act provides that “any premiums, deductibles, cost sharing, or similar charges imposed under the State child health plan may be imposed on a sliding scale related to income, except that the total annual aggregate cost sharing with respect to all targeted low-income children in a family under this title may not exceed five percent of such family's income for the year involved.” The statute's reference to “deductibles, cost sharing, and similar fees” clearly indicates that the charges to be counted towards the cumulative cost-sharing maximum are not to be limited to premiums and enrollment fees. However, States have the option to impose only premiums under their SCHIP plans.

Comment: One commenter noted an error in this section. Specifically, the commenter pointed out that the proposed regulation text states that total cost sharing imposed on families with incomes above 150 percent of the FPL not exceed the maximum permitted under § 457.555(c). It should be § 457.560(c).

Response: The commenter is correct that the reference should have been to § 457.560(c). In addition, in order to eliminate this confusion and redundancy in the final regulation text, we have eliminated section § 457.545 and reflected the policy at § 457.560(c).

14. Grievances and Appeals (§ 457.565)

We proposed that the State must provide enrollees in a separate child health plan the right to file grievances and appeals in accordance with proposed § 457.985 for disenrollment from the program due to failure to pay cost sharing. We address comments on proposed § 457.565 in subpart K, Enrollee Protections, which now contains the provisions relating to applicant and enrollee protections. We have deleted proposed § 457.565 in an effort to consolidate all provisions relating to the review process in the new subpart K.

15. Disenrollment Protections (§ 457.570)

Section 2101(a) of the Act provides that the purpose of title XXI is to provide funds to States to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children in an effective and efficient manner that is coordinated with other sources of health benefits coverage for children. Based upon this provision of the statute, we proposed in § 457.570 to require that States establish a process that gives enrollees reasonable notice of, and an opportunity to pay, past due cost-sharing amounts (premiums, copayments, coinsurance, deductibles and similar fees) prior to disenrollment. We requested comments on this requirement, including specific comments on the determination of an amount of time that would give enrollees reasonable notice and opportunity to pay cost-sharing amounts prior to disenrollment. We stated that we would request that States with approved plans submit this additional information after publication of the proposed rule and prior to the State's onsite review. We stated that we would also ask the State to include a description of its process in future amendments to its State plan.

Comment: One commenter noted that disenrollment occurs in the Hispanic population because the SCHIP process is extremely paper-intensive. In this commenter's view, one of the most common reasons for disenrollment from SCHIP is the termination of benefits due to the failure to provide premium payments in a timely manner. They stated that, Hispanics in eligible income brackets, in particular, tend to deal in a cash economy, making it difficult to pay SCHIP premiums in the preferred method of payment. In order to slow disenrollment the commenter stated that it is necessary to devise a plan to eliminate the barrier to payment, and effectively reduce the rate of disenrollment among Hispanics.

Response: The SCHIP statute specifically allows States to impose premiums on the SCHIP population within statutorily defined limits. However, we encourage States to be flexible in the methods of payment permitted for cost-sharing charges and to allow grace periods and to provide adequate notice when payments are not made. We have clarified in the final rule that the State plan must describe the disenrollment protections provided to enrollees. In addition, States might monitor disenrollments by reason for disenrollment and determine whether certain groups of enrollees are more likely than others to lose coverage due to failure to meet the cost-sharing requirements. In addition, we encourage States to work with advocates from the Hispanic community to devise culturally sensitive methods to inform consumers about cost sharing anddevise appropriate procedures for obtaining necessary premium payments.

Comment: One commenter noted that the appeals procedures should not be structured in such a way as to give a child's family an incentive to drop SCHIP coverage for a child until he or she needs health services. This practice undermines basic insurance principles and threatens the financial integrity of SCHIP programs because it would result in the pool of enrollees being significantly more sick and more costly than would otherwise be anticipated, in this commenter's view. They stated that the result of such a practice would be to unnecessarily increase the costs of providing coverage to enrollees, which in turn would potentially threaten the viability of the State's SCHIP. The commenter recommended that HCFA revise the regulation to require States to address this issue when they define the circumstances under which a member will be permitted to re-enroll following voluntary disenrollment or disenrollment for nonpayment of premiums or cost sharing.

Response: We are aware that there may be problems when an enrollee is disenrolled and permitted to re-enroll. Some States have adopted lock-out periods to promote the appropriate utilization of health insurance, although other States have discontinued their lock-out periods because they did not find any significant increase in sicker enrollees. States have the flexibility to design their programs based on their unique circumstances to assure that eligible enrollees maintain coverage.

Comment: Many commenters agreed that enrollees should be given an opportunity to pay past due cost sharing prior to disenrollment. Many commenters noted that there should not be any lock-out periods, that States should give families every opportunity to pay past due premiums and at a minimum, grant grace periods of 60 days for the non-payment of premiums. One commenter suggested that the preamble urge States to conduct a Medicaid screen if a child's family is unable to pay premiums due to financial hardship.

Response: We agree that, at the very least, a State should give enrollees a chance to pay past due cost sharing prior to disenrollment. While many commenters noted that lock-out periods should not apply, it is appropriate to allow States to implement a lock-out period so that individuals are not obtaining or maintaining SCHIP coverage only when they need services. We also agree with the comment encouraging States to perform a Medicaid eligibility screen for enrollees who are unable to pay cost-sharing charges due to financial hardship and have emphasized this elsewhere in comments to this final rule. We have added that the disenrollment process must afford enrollees the opportunity to show that their family income has declined prior to being disenrolled for nonpayment of cost-sharing charges. In the event that such a showing indicates that the enrollee may have become eligible for Medicaid or a lower level of cost sharing under separate child health plans, States should take action to either enroll the child in Medicaid or adjust the child's cost sharing category. We expect this new protection will afford enrollees the opportunity to enroll in Medicaid if they have become eligible.

Comment: A few commenters noted specific standards regarding disenrollment protections that HCFA should articulate in the final regulation. Specifically, the commenter recommended that HCFA clearly define what constitutes reasonable notice; clarify that only the State may disenroll a child or impose any other sanction due to an enrollees's failure to pay cost sharing; provide that disenrollment can only be effected after all reasonable steps have been undertaken to avoid disenrollment; require that families should be offered the opportunity to establish a repayment plan; and that families cannot be subjected to penalties or interest for past due payments.

Response: The regulation at § 457.570 regarding disenrollment protections provides enrollees with meaningful protections in connection with any disenrollment related to cost sharing while giving the States flexibility to establish processes consistent with the goals and structure of their programs. We do not accept the commenter's recommendation that HCFA be prescriptive in the regulation regarding disenrollment protections, because each State's SCHIP program is separate and distinct and should retain flexibility accordingly.

Comment: One commenter noted that States should be given the flexibility to decide how they will implement this standard. Specifically, this commenter believes it is administratively burdensome to track a specific grace period before a family is disenrolled from SCHIP.

Response: States are granted flexibility to establish disenrollment procedures under § 457.570 of the final rule. These procedures must be included as part of the State plan. However, the rule does require States to provide reasonable notice prior to disenrollment and provides for a period of time (grace period) for the enrollee's family to pay past due amounts. The rule also enables the State to evaluate the enrollee's financial situation prior to disenrollment to ensure he or she does not qualify for Medicaid.

Comment: One commenter complained that the proposed disenrollment protections were too burdensome because they do not permit disenrollment for nonpayment of premiums even after reminder notices have been sent. One commenter noted that implementing a grace period before disenrollment will result in duplicative coverage and wasted funding since research shows that the primary reason a family fails to pay its monthly premium is that the family has obtained other coverage.

Response: The regulation at § 457.570 regarding disenrollment protections gives the States flexibility to establish processes consistent with the goals and structures of their programs. A disenrollment process without any grace period could result in a system that would disenroll a family prematurely (without adequate notice) and interrupt the family's continuity of care. Therefore, we continue to require that States establish a process that gives enrollees reasonable notice of, and an opportunity to pay past due premiums, copayments, coinsurance, deductibles, or similar fees prior to disenrollment.

Comment: One commenter noted that there may be cases in which the individual responsible for paying a premium is not the custodial party or head of household for the children. In such cases, the commenter stated that notices of disenrollment for failure to pay a premium need to be provided to both the payer of the premiums and the SCHIP beneficiary. Also, if premiums are owed by an individual other than the head of household, and are not paid, the family receiving the SCHIP benefits should not be subject to penalties, and should be given an opportunity to assume responsibility for making future payments.

Response: We agree with the commenter and recommend that States review all viable financial options of an enrollee prior to disenrolling an enrollee due to a parent or caretaker's failure to pay cost sharing. We will also require that States include a disenrollment policy as part of its public schedule, so that all family members who are responsible for paying cost sharing on behalf of the enrollee are informed of the disenrollment process.

F. Subpart G—Strategic Planning, Reporting, and Evaluation

1. Basis, Scope, and Applicability (§ 457.700)

As proposed, this subpart sets forth the State plan requirements for strategic planning, monitoring, reporting, and evaluation under title XXI. Specifically, this subpart implements sections 2107(a), (b), and (d) of the Act, which relate to strategic planning, reports, and program budgets; and section 2108 of the Act, which sets forth provisions regarding annual reports and evaluations.

In the preamble to the proposed rule, we noted the importance of reporting and evaluating SCHIP data. We stated that these activities will provide the critical information necessary for meeting Federal reporting requirements, documenting program achievements, improving program function, and assessing program effectiveness in achieving policy goals. We also described that our information dissemination policy will include making State annual reports, State evaluations and a summary of State expenditures and statistical reports regularly available on the Internet.

Comment: Several commenters strongly supported the statement in the preamble to proposed § 457.700 indicating that we plan to make annual reports, State evaluations, and summaries of State reports regularly available for public access on the Internet. One commenter recommended that an annual, separate, consumer-friendly SCHIP State-by-State status report be available in written and electronic form to the public.

Response: We plan to continue the information dissemination policy that includes making annual reports, State evaluations, and a summary of State expenditures and statistical reports regularly available on the Internet, to the maximum extent possible. We have already produced two State-by-State reports on SCHIP enrollment and released a summary of the States' March 31, 2000 evaluations. We plan to produce and make available future informational reports based on State evaluations, enrollment data, and other sources. We encourage the public not only to access our web site to read the State annual reports and other State-specific information but also to access individual State web sites. In addition, we note that several national organizations, such as the National Governors' Association (NGA), the National Academy for State Health Policy (NASHP), the Children's Defense Fund, the National Conference of State Legislators (NCSL), the American Public Human Services Association (APHSA), the American Academy of Pediatrics (AAP), and other organizations representing State and local governmental entities periodically produce State-by-State SCHIP status or informational reports that are available to the public. We encourage the public to utilize these resources.

Comment: Several commenters stated that we should require States to collect information in a manner that does not discourage individuals from applying for SCHIP. Techniques suggested for achieving this goal include: explaining to participants the purpose of the information collected, assuring confidentiality of information collected, and disclosing that the failure to provide the requested information will not be used to deny eligibility.

Response: We agree with commenters on the importance of gathering evaluative information without creating barriers to participation in SCHIP; and we know this is a concern for States and other stakeholders who have worked to simplify and streamline the application process. We also recognize the flexibility given to States in creating and evaluating their uniquely designed SCHIP programs. We encourage States to be mindful of potential barriers created by collecting information and to create systems that do not prevent potential enrollees from applying for health insurance coverage under SCHIP.

In addition, as noted later in the responses to comments on §§ 457.740 and 457.750, in conjunction with the requirement that States collect and report information about the gender, race, ethnicity and primary language of SCHIP enrollees; we emphasize the importance of States ensuring through the application process that failure to provide information on one of these areas will not affect a child's eligibility for the program. In addition, States must request this information in a manner that is linguistically and culturally appropriate so as not to discourage enrollment in the program.

2. State Plan Requirements: Strategic Objectives and Performance Goals (§ 457.710)

In accordance with section 2107(a) of the Act and the Government Performance and Results Act of 1993 (GPRA), proposed § 457.710 encouraged program evaluation and accountability by requiring the States to include in their State plan descriptions of the strategic objectives, performance goals, and performance measures the State has established for providing child health assistance to targeted low-income children under the plan and for otherwise maximizing health benefits coverage for other low-income children and children generally in the State.

In accordance with section 2107(a)(2) of the Act, we proposed at § 457.710(b) that the State plan must identify specific strategic objectives related to increasing the extent of health coverage among targeted low-income children and other low-income children. We encouraged States to view the development of strategic objectives as a process that involves translating the basic overall aims of the State plan into a commitment to achieving specific performance goals or targets, recognizing that there will be variation among States in specific evaluation approaches and terminology. One of the strategic objectives established in the Act is the reduction in the number of low-income, uninsured children.

Under section 2107(a)(3) of the Act, States must identify one or more performance goals for each strategic objective. We proposed to implement this statutory provision at § 457.710(c). We noted in the preamble that detailed performance goals should facilitate the State's ability to assess the extent to which its strategic objectives are being achieved. In addition, we provided guidance on factors States should consider in drafting strategic objectives and performance goals, noting that they should consider not only the general population targeted for SCHIP enrollment, but special population subgroups of particular interest as well.

In accordance with section 2107(a)(4) of the Act, proposed § 457.710(d) provides that the State plan must describe how performance under the plan will be measured through objective, independently verifiable means and compared against performance goals. We set forth specific examples of acceptable performance measures in the preamble to the proposed rule.

Comment: We received several comments suggesting that we require States to report on a common core of widely-used, objective, standardized, and child-related performance measures and strategic objectives designated by the Secretary. Furthermore, commenters recommended that we require the results of these standard performance measures to be included in the States' annual reports. Some commenters feared that, absent a requirement to report a common set of measures, the information collected might be meaningless and could not be used to evaluate or compare the effectiveness of State plans.

Commenters recommended strategic objectives including: the need to reduce and/or eliminate racial and ethnic disparities in children's health insurance coverage; the need to reduce and/or eliminate barriers to health coverage for children with disabilities; the need to reduce stigma and barriers to access in Medicaid; the need to ensure that the goal of increasing coverage for uninsured children does not supplant or overshadow the importance of ensuring that the receipt of health benefits coverage results in the provision of quality health care and improves health outcomes. Commenters believed that HCFA should consult with the States in creating these national standards, and in doing so, build upon the efforts of other Federal agencies, such as the performance measures developed for State Maternal and Child Health Services Block Grants by the Health Resources and Services Administration.

Response: We agree there should be a common core of evidence-based, standardized, child-related performance measures and performance goals. These measures and goals can be used to evaluate the overall effect of the program in access, service delivery, processes of care and health outcomes with the intent of improving the quality of care, particularly in the areas of well-baby care, well-child care, well-adolescent care, and childhood and adolescent immunizations. Section 2701(b)(1) of the Act and proposed § 457.20 directs that State plans must include assurances that the State will collect data, maintain records, and provide reports to the Secretary at the times and in the format the Secretary may require. The development of common quality and performance measures and goals is essential to assessing the national impact of the SCHIP program and we have modified the regulation text at § 457.710(d)(3) to provide that the Secretary may prescribe a common core of national measures.

However, we also acknowledge the difficulties in achieving national consensus on specified measures. Therefore, HCFA will convene a workgroup to develop a set of core performance measures and performance goals incorporating appropriate quality assurance indicators, and the methodology for implementing common measures and goals for SCHIP in an appropriate and timely manner. As we undertake this effort, we will be guided by the objectives, goals and measurement methods States have developed, as described in their annual reports and evaluations.

The development of national performance indicators and goals does not diminish the importance of having States identify their own specific strategic objectives, and accompanying performance goals and measurements. While States may be required to adopt national performance measures and goals once they have been developed, we expect States to implement their own performance measures, performance goals and strategic objectives specific to the unique design and priorities of their own program. States, in accordance with section 2107(a)(4) of the Act, will continue to be required under § 457.710 to establish State-specific performance measures and to describe how performance under the plan will be measured through objective, independently verifiable means and compared against performance goals.

Comment: One commenter suggested that HCFA recommend to States the following outcome measures: out-of-home placements, the Children and Adolescent Functional Assessment Scale (CAFAS), days-in-school, school performance, and reduced involvement in the legal system.

Response: We agree with the commenter that measures from a variety of sources can be useful in evaluating the impact of SCHIP on the health and the behavior of participants and we would encourage States to take them into consideration as they develop their State-specific performance measures. Additionally, as we convene a workgroup to discuss the development of national core performance and quality assessment measures, we will consider the measures the commenter has suggested. We are mindful, however, that SCHIP's first goal is to expand coverage to uninsured children and that, while it is generally believed that coverage and better access to health care can lead to improvements in school attendance and school achievement, it is difficult to isolate the cause and effect of changes in social behavior that are influenced by a wide range of factors and circumstances.

Comment: We received one comment expressing concern that the willingness and ability of managed care entities (MCEs) to participate in SCHIP depended on whether the revenues adequately covered the MCEs' costs. The commenter noted that costs associated with collecting and validating data may be substantial, and thus may prevent MCEs' from participation in the program. The commenter expressed concern that the MCE might not have a large enough population of SCHIP participants to generate statistically valid data. Additionally, the commenter asserted that HCFA has failed to establish realistic goals for Quality Improvement System for Managed Care (QISMC)-related health plan activities and performance that take into consideration available resources and responsibilities for the delivery of quality care for beneficiaries.

Response: We recognize the concerns expressed by the commenter. However, we disagree that the requirements in the proposed regulation may impose an undue financial hardship upon MCEs. This regulation provides States with significant flexibility regarding the performance measurements they will use and the preamble to the proposed rule encouraged States to review measures, including those widely used by private-sector purchasers of MCE services. We suggested in the preamble of the NPRM that States may wish to consider adopting standardized methods and tools in quality assurance and improvement, such as those of the QISMC initiative, but we did not propose and are not requiring the use of QISMC-related measures. However, the burden on MCEs would be minimized to the extent a State chooses measures that the MCEs are already using in connection with other programs.

In any event, the regulation imposes obligations on States and does not directly govern actions of MCEs. While we require States to report data relating to their strategic objectives and specific performance goals, we are aware of the difficulty in compiling statistically valid data in small sample sizes and are mindful of States' interest in reducing burden for their MCEs. The regulation does not require that States collect encounter data. States have the option of choosing other methods of collecting data related to their strategic objectives, including, but not limited to, surveys of SCHIP participants and/or SCHIP health care providers and looking at encounter data, to the extent it is available.

Comment: One commenter urged HCFA to include the American College of Obstetricians and Gynecologists educational bulletin entitled “Primary and Preventive Health Care for Female Adolescents” in the list set forth in the preamble of examples of widely recognized measures and guidelines states should review in developing performance measures for SCHIP programs.

Response: We agree with the commenter that there may be several measures beyond those we specifically mentioned in the preamble to the proposed rule that States might find helpful in translating their strategicobjectives into performance measures and goals. We encourage States to consider this bulletin as well as others that provide widely-used performance measures for children's and adolescent's health and health care.

Comment: A couple of commenters indicated that while the Health Employer Data and Information Set (HEDIS) was designed to be reported at the health plan level, plan-reported numerators and denominators can be added together to yield aggregate State-level reports that could help measure performance in reaching State enrollment targets and in delivering high quality health care. The commenters indicated that HEDIS measures are objective, validated measures of health plan performance (on quality, access and availability, and the use of services) and, when audited using the HEDIS Compliance Audit, performance measures are independently verified. In addition, the commenters stated that national benchmarks exist for both the commercial and Medicaid populations which can be used to establish performance goals and to evaluate performance of a specific health plan or State SCHIP program. One commenter noted that the National Committee on Quality Assurance (NCQA) offered to work with HCFA and States on implementation strategies, including making HEDIS specifications broadly available.

Response: We agree that HEDIS may be a useful tool for States in measuring their performance and establishing goals. We appreciate NCQA's willingness to assist with SCHIP implementation and are working with them to develop HEDIS specifications for SCHIP. In States that are considering using HEDIS measures, we have recommended the following approach to reporting data and information on SCHIP programs: Where a State contracts with managed care entities (MCEs) for health benefits coverage for SCHIP enrollees, States should, where possible, identify individual SCHIP enrollees for its contracting MCEs as detailed below.

If the State has identified SCHIP enrollees to a contracting MCE, and the contracting MCE also contracts with the State Medicaid program, then the MCEs should, as directed by the State either: (1) report the required HEDIS measures separately for SCHIP enrollees; or (2) include SCHIP enrollees in their Medicaid product line reports.

If the State has identified SCHIP enrollees to a contracting MCO and the contracting MCE is a commercial MCE without a Medicaid product line, the MCE should exclude SCHIP enrollees from its commercial product line reports, because including SCHIP enrollees in HEDIS reports for commercially enrolled populations may affect commercial MCE-to-MCE comparisons. Under these circumstances, HEDIS performance measures for SCHIP enrollees will need to be reported separately. In addition, MCEs with small numbers of eligible SCHIP enrollees should follow the small numbers general guideline. These specifications will be included in the HEDIS guidelines for 2001.

Comment: In response to HCFA's solicitation for comments on additional measures that will assist in articulating the success of programs implemented under title XXI, several commenters recommended the following performance measures:

Access

—Percentage of Medicaid eligible enrolled in Medicaid;

—Percentage of SCHIP eligible enrolled in SCHIP;

—Percentage of children with a usual source of health care;

—Percentage of children with an unmet need for physician services and/or delayed care;

—Reduction of hospitalization for ambulatory sensitive conditions;

—Percentage of enrollees who are enrolled for a year or more;

—Percentage of children who are identified as having special health care needs;

—Percentage of employers offering health insurance coverage to employees and dependent children;

—Percentage of enrollees whose parents decline employer-sponsored dependent health insurance coverage;

—Percent of children whose eligibility switches between title XIX and title XXI who enroll in the appropriate program (or who maintain health insurance coverage);

—Percentage of pediatricians, family physicians, and dentists who participate in Medicaid and SCHIP;

Process

—Percentage of children and adolescents who have received immunizations according to the ACIP/American Academy of Pediatrics recommended immunization schedule;

—Percentage of children and adolescents who have received all of the well-child visits appropriate for their ages, based on the American Academy of Pediatrics Recommendations for Pediatric Health Care;

—Percentage of adolescents ages 12 though 18 who were counseled for symptoms or risk factors for STDs;

—Percentage of children ages four through 18 during the reporting year who received a dental examination during that year;

—Percentage of children ages three through six who received a vision screening examination during the reporting year;

—Percentage of children and adolescents with all of the well-child visits provided at one health care site during the reporting year;

—Percentage of children and adolescents, parents or caretakers with difficulty communicating with health care professionals because of a language problem or difficulty understanding health care professionals;

—Percentage of children and adolescents with asthma who regularly use a peak flow meter during the reporting year, regularly use a spacer with a metered dose inhaler, and/or who received influenza vaccine during the reporting year;

—Percentage of children with special health needs who received care during the reporting year;

Outcomes

—Rate of hospitalization for ambulatory sensitive conditions such as asthma, diabetes, epilepsy, dehydration, gastroenteritis, pneumonia; or urinary tract infection (UTI);

—Rate of hospitalization for injuries;

—Percentage of children and adolescents reporting days lost from school due to health problems;

—Percentage of children reporting risky health behaviors including injuries, tobacco use, alcohol/drug use, sexual behavior, poor dietary behavior, lack of physical activity;

—Percentage of adolescents reporting attempted suicides;

—Percentage of children reporting unmet medical needs;

—Percentage of children reporting unmet vision needs;

—Percentage of children reporting unmet dental needs; and

—Percentage of family income used for medical and dental care.

Response: Assessments of the impact of the title XXI program on children's health insurance coverage, access to care and use of health care services will occur on both the State level and national levels. On the State level, we would encourage States to consider the commenters' suggested performance measures as they identify those measures which are appropriate for eachof their strategic objectives as required under section 2107(a)(3) of the Act and § 457.410(b).

Nationally, as HCFA works to develop a common core of standardized child-related performance measures, performance levels and quality measures that can be used to evaluate access, service delivery, processes of care, health outcomes and quality in the overall SCHIP program, we will consider the performance measures recommended by the commenters.

3. State Plan Requirement: State Assurance Regarding Data Collection, Records, and Reports (§ 457.720)

Section 2107(b)(1) of the Act requires the State plan to provide an assurance that the State will collect the data, maintain the records, and furnish the reports to the Secretary, at the times and in the standardized format that the Secretary may require to enable the Secretary to monitor State program administration and compliance and to evaluate and compare the effectiveness of State plans under title XXI. We proposed to implement this statutory provision at § 457.720.

We did not receive any comments on this section and are therefore implementing the provision as proposed.

4. State Plan Requirement: State Annual Reports (§ 457.730)

Section 2107(b)(2) of the Act discusses the requirement that the State plan include a description of the State's strategy for the submission of annual reports and the State evaluation.

Accordingly, we proposed to implement this provision at § 457.730. We noted that, in order to facilitate report submission, a group of States worked with staff from the National Academy of State Health Policy (NASHP), with HCFA representation, to develop an optional model framework for the State evaluation due March 31, 2000 and for subsequent annual reports. We also noted that we would permit States to submit their FY 1999 annual report and their State evaluation on March 31, 2000, together as one comprehensive document. However, since the States evaluations/annual reports have all been submitted, this provision is unnecessary and has been deleted from the final rule. In addition, we have moved the discussion of the annual report requirements to comments and responses on § 457.750.

Comment: One commenter recommended that we require States to use a designated framework for submitting annual reports and evaluations. This commenter suggested that we include clinicians, child advocates and research groups to participate in the development of frameworks for future reports.

Response: While we do not believe it is necessary to require a designated framework for annual reports and evaluations, in order to facilitate report submission, a group of States worked with staff from NASHP and with representatives from HCFA to develop an optional model framework for the State evaluation due March 31, 2000. This framework was finalized and sent to every State and territory with an approved State plan. All States that have submitted their State evaluations have voluntarily used this framework as the basis for their evaluation, although several States supplemented their evaluations with additional data. We currently are in the process of analyzing and synthesizing the data submitted in these evaluations. We will continue to work with States and other interested parties to support these efforts to promote ease of reporting and to facilitate analysis and comparison of important data reported by States on their programs.

NASHP has subsequently developed a similar framework for the annual reports that States will be submitting in January 2001. As SCHIP development continues, we encourage continued participation in the evaluation process by interested researchers, health care providers and provider groups, advocates and advocacy groups, insurance providers, State and local government officials, and other interested parties and intend to keep the process as open and collaborative as possible.

5. State Expenditures and Statistical Reports (§ 457.740)

We proposed to require that the States collect required data beginning on the date of implementation of the approved State plan. We proposed that States must submit quarterly reports on the number of children under 19 years of age who are enrolled in separate child health programs, Medicaid expansion programs, and regular Medicaid programs (at regular FMAP) by age, income and service delivery categories. In the preamble, we noted that the Territories are excepted from the definition of “State” for the purposes of quarterly statistical reporting. We also proposed to require that thirty days after the end of the Federal fiscal year, the State must submit an unduplicated count for that Federal fiscal year of children who were ever enrolled in the separate child health program, the Medicaid expansion program and the Medicaid program as appropriate by age, service delivery, and income categories.

We proposed that the age categories that must be used to report the data are: under 1 year of age, 1 through 5 years of age, 6 through 12 years of age, and 13 through 18 years of age. We further proposed to require States to report enrollment by the service delivery categories of managed care, fee-for-service, and primary care case management.

We noted in the proposed regulation and explained in the preamble that States must report income by using State-defined countable income and State-defined family size to determine Federal poverty level (FPL) categories. We proposed that States that do not impose cost sharing and States that only impose cost sharing based on a fixed percentage of income (such as 2 percent) in their Medicaid expansion program or their separate child health program must report their SCHIP and Medicaid enrollment by using two categories: at or below 150 percent of the FPL and over 150 percent of FPL. States that impose cost sharing at defined income levels (for example, at 185 percent and over of FPL) in their Medicaid expansion programs and/or separate child health programs would be required to report their Medicaid and SCHIP enrollment by poverty level (that is, countable income and household size) categories that match their Medicaid expansion program and separate child health program cost-sharing categories. We proposed to require enrollment reporting by income for Medicaid as well as for SCHIP.

We proposed that required standardized reporting be limited to expenditure data and enrollment data as reported by age, poverty level, and service delivery category. We noted in the preamble to the NPRM that States should collect other relevant demographic data on enrollees such as gender, race, national origin, and primary language and that collecting such data will encourage the design of outreach and health care delivery initiatives that address disparities based on race and national origin.

We stated that we were working to develop an option for States to provide the needed SCHIP data through existing statistical reporting systems in the future.

Comment: One commenter suggested that we revise the regulations to specify that a State's failure to submit the statistical reporting forms would ordinarily be considered substantial non-compliance.

Response: Section 457.720 requires States to comply with data reportingrequirements. Section 2106(d)(2) of the statute and § 457.204(c) provide the Secretary with authority to enforce these and other requirements. We do not believe that it is necessary to specify more specific sanctions for non-reporting or delayed reporting within the rule.

We are working closely with States to develop and implement data tracking and reporting systems. SCHIP reporting may involve creating new systems or adjusting existing systems to collect data which can then be reported to DHHS and we recognize that the reporting changes required in this final rule may require further changes to these systems. We will work with the States to accommodate individual needs for technical assistance during the transition.

In the past, some States have had difficulty reporting data to us in a timely matter due to systems constraints. However, we anticipate that many of these difficulties will be resolved in the near future. We recently implemented a new, more easily accessible web-based data reporting system (the Statistical Enrollment Data System (SEDS)) that all States can access through the Internet, rather than through the main frame system. We have also revised the reporting instructions to clarify definitions in a way that will be more clear for States and provide for more standardized reporting among the States. We released these new instructions with a letter to State Health Officials on September 13, 2000. In addition, we are continuing a comprehensive evaluation of possible modifications to the Medicaid Statistical Information System (MSIS), which captures State eligibility and claims records on a person-level basis. The modifications will give States the option of using MSIS to supply the data elements that will meet the title XXI quarterly statistical reporting requirements. We look forward to working with States to further improve the time lines and quality of required SCHIP data. In addition, we have added a new reporting line to the quarterly reports where States indicate a “point in time” enrollment count that indicates enrollment as of the last day of the quarter for their SCHIP and title XIX Medicaid programs. This count is something the States already have available for their own purposes and helps provide a more complete picture of States' programs on an ongoing basis.

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 this 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 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 agree with several of the comments summarized above. Section 2107(b)(1) of the Act requires that “a State child health plan shall include an assurance that the State will collect the data, maintain the records and furnish the reports to the Secretary, at the times and in the standardized format the Secretary may require in order to enable the Secretary to monitor State program administration and compliance and to evaluate and compare the effectiveness of State plans.” The proposed rule at § 457.740(a) had included requirements on States to collect and submit data by age categories, service delivery categories and by countable income. In an effort to streamline data reporting requirements, we had only encouraged States to collect data with respect to gender, race and ethnicity, and did not propose to require the collection or the reporting to HCFA of such data. We received many comments expressing concern about this policy and urging us to require States to report data on gender, race, ethnicity and primary language of SCHIP enrollees to HCFA.

We have reviewed our proposed policy and have decided that it is consistent with overall program goals, as well as the civil rights requirements, 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 the Maintaining, Collecting and Presenting Data on Race and Ethnicity. We have therefore amended § 457.740(a)(2) to reflect this requirement. Because primary language of SCHIP enrollees is not one of the data elements on standardized reporting formats, we will require States to report on this information as part of the Annual Report, and have amended § 457.750(b)(8) to reflect this change. We understand that nearly all States have already been collecting this information through the application process. Although States may request information on gender, race, ethnicity and primary language at the time of application, States may not require families to report this data as a condition of application to, or enrollment in the SCHIP program. The information must be collected from SCHIP applicants and enrollees on a voluntary basis. Having this data will enable States and the Department to see how and if minority children and other categories of children are being covered by the SCHIP program and to identify opportunities for more effective outreach and retention strategies.

Furthermore, required reporting of this data is consistent with Departmental priorities to more effectively identify racial disparities in the provision of health care and to assure that language barriers do not interfere with children's ability to secure health care. HCFA will modify its data base to permit States to report these data on the same system as they report enrollment data. We understand States may incur additional administrative costs to comply with this requirement. However, the potential benefits for the States and for the Department are significant.

Comment: Commenters asserted that neither the State nor the health insurance purchasing cooperative has the legal authority to require employer-sponsored insurance carriers to report claims data. Therefore, commenters noted, States with premium assistance programs would have difficulty reporting program expenditures and participants by age, income, delivery system, and program type as required by HCFA.

Response: Since States or their contractors would be completing the eligibility process for children enrolling through premium assistance programs, States would have data available on the child's age, family income, the type of child health insurance program offered by the State, and the expenditures being made on behalf of the child. We are not requesting individual claims data used by group health plans providing SCHIPcoverage. Service delivery systems could be ascertained by the State by reviewing the benefit package available through each employer. This might present difficulties if an employer had several options with varying delivery systems available at the same cost to the State. Should this be the case, we would work with States on a case-by-case basis to consider other options for collecting this data.

Comment: One commenter noted that the collection report Form HCFA-64, revised in December 1998, requires additional information that is not reflected in § 457.740, including number of months enrolled, and the number disenrolled per quarter. Several commenters suggested that HCFA require States to report this data to HCFA on a quarterly basis.

Response: In § 457.740, we did not intend to specify each data element that we will be requiring, because we wanted to be able to review and modify specific elements as the program evolves. We have authority under section 2107(b)(1) to specify at § 457.720, that States must provide data “at the times and in the standardized format * * *” to enable the Secretary to monitor State program administration and compliance and to evaluate and compare the effectiveness of State plans under title XXI. This includes the number of months enrolled and number disenrolled per quarter.

The forms referenced by the commenter are quarterly reports used by State Medicaid agencies to report to HCFA their actual Medicaid expenditures and the numbers of SCHIP children and other children being served in the Medicaid program. HCFA uses these forms to ensure that the appropriate level of Federal payments for the State's Medicaid expansion program expenditures, and to track, monitor and evaluate the numbers of SCHIP children being served by the Medicaid expansion program. HCFA uses a similar quarterly reporting form, the HCFA-21, to collect comparable information on separate child health programs.

Comment: One commenter noted that the collection of data to measure the effectiveness of SCHIP should include the number and types of services actually delivered in addition to the number of children enrolled. This commenter suggested that we revise the regulations to specify that data can be collected and reported by the State using American Dental Association procedure codes to reflect total number of actual services rendered to eligible individuals.

Response: We agree States should consider utilization measures in developing Statewide performance measures of progress toward meeting State performance goals and strategic objectives. We also envision that States may want to measure care and service delivery so that they may determine numbers of participating providers and health networks needed for the program. The regulation provides States with flexibility in developing these measures and appropriate data collection methodologies.

As the Department works on developing and implementing a common core of standardized performance measures and performance goals, we will consider the outcome measures suggested by the commenter.

Comment: One commenter generally supported the quarterly reporting requirements but requested one additional required report measure. Specifically, the commenter urged HCFA to require reporting (either annually or quarterly) on the number of newborns who are enrolled at birth and the number of infants who are enrolled within the first three months of life. The commenter believed this information could be used by States to assess whether income-eligible newborns are experiencing gaps in coverage between the time of birth and SCHIP enrollment.

Response: We strongly encourage the States to collect the required information on age of participants in such a way that they may analyze the health coverage patterns of newborns and infants. We have not required States to report this information to HCFA. However, we will consider the commenter's suggestion as we develop the national core set of performance measures and goals.

Comment: One commenter urged HCFA to require States to describe their income calculation methodologies and changes in those methodologies and to make that information available to the public.

Response: We agree with the commenter's suggestion and note that income calculation methodologies and changes to these methodologies were requested to be provided by States as part of their State evaluations (due to HCFA on March 31, 2000). Because of the importance of having this information in a standardized manner, as well as keeping the information current, we have included this as an element of subsequent State annual reports. We have compiled and reviewed the submissions from the States thus far, and the information is available to the public along with the rest of the States' evaluations on the HCFA web site.

In addition, we discussed in our July 31, 2000 guidance on SCHIP section 1115 demonstrations that in order to receive approval for a demonstration proposal, States must have submitted all of their required statistical reports and evaluations to HCFA, dating back to the implementation of their program.

Comment: One commenter found the detailed reporting requirements problematic, cumbersome, and difficult to comply with under current automated systems.

Response: We recognize the commenter's concerns. However, we will continue to require the collection and quarterly reporting to HCFA of the data required in this section. We will continue to offer technical assistance to States having difficulty reporting the required data due to automated system difficulties. As noted previously, States are able to report data to HCFA through a web-based reporting system on the Internet, to provide States with easier access to the reporting system. In addition, we have developed a set of revised reporting instructions to facilitate reporting by States in a standardized format. We believe these modifications will result in a reporting system with which States can comply with minimal difficulties.

In addition, we are continuing a comprehensive evaluation of possible modifications to the Medicaid Statistical Information System (MSIS), which captures State eligibility and claims records on a quarterly basis. The modifications will give States the option of using MSIS to supply data related to separate child health programs as well as Medicaid expansion programs and will promote overall consistency among SCHIP and Medicaid data in the long term.

Comment: We received several comments applauding our recognition of the interrelationship of Medicaid and SCHIP and the requirement of similar reporting for regular Medicaid, Medicaid expansion, and separate child health programs. However, one commenter opposed the requirement that all States, including those operating separate child health insurance programs, report changes in enrollment in both the SCHIP program and the Medicaid program. The commenter noted that some States operate separate child health programs that are administered by different staff, governing boards, budgets, etc. than the State Medicaid program. The commenter opposed a requirement that a separately administered SCHIP program have a contractual requirementto obtain data from a Medicaid agency. The commenter stated that if HCFA wished to review Medicaid data, it should develop new Medicaid regulations to require such data and to provide reimbursement to the Medicaid agency as the SCHIP program has no budget or legal authority to collect Medicaid data. The commenter added that additional administrative requirements from HCFA should be accompanied by additional administrative dollars, or they represent unfunded mandates that exacerbate the 10 percent administrative-cost limit problem.

Response: The statute anticipates that State agencies implementing SCHIP and Medicaid will coordinate activities and share information. Section 2108(b)(1)(C) of the Act requires States to report on or before March 31, 2000 “an assessment of the effectiveness of other public and private programs in the State in increasing the availability of affordable quality individual and family health insurance for children.” In addition, section 2108(b)(1)(D) specifically requires States to report on coordination with other public and private programs providing health care and health financing, including Medicaid programs. Furthermore, these requirements are not specific to the State agency administering SCHIP or Medicaid, but rather apply to the State as a condition of receiving grant funding under these programs, regardless of how the State internally delegates responsibilities under these programs.

In addition, section 2107(b)(1) of the Act requires that the State plan contain certain assurances regarding the collection of data and submission of reports to the Secretary. In addition, § 431.16 of the Medicaid regulations specifies that a State plan must provide that the Medicaid agency will submit all reports required by the Secretary, follow the Secretary's instructions with regard to the format and content of those reports, and comply with any provisions that the Secretary finds necessary to verify and assure the correctness of the reports. These statutory and regulatory provisions serve as our authority for requiring Medicaid State expenditure and statistical reporting at § 457.740. State agencies can reasonably be expected, as directed in the statute, to coordinate among programs, including by sharing and reporting information.

Since Medicaid agencies receive Federal financial participation under title XIX for administrative costs, such as those associated with data collection, sharing this information with the States' title XXI programs should not exacerbate any difficulty States may have in staying within the 10 percent administrative cost limit in SCHIP.

6. Annual Report (§ 457.750)

Section 2108(a) of the Act provides that the State must assess the operation of the State child health plan in each fiscal year, and report to the Secretary, by January 1 following the end of the fiscal year, on the results of the assessment. In addition, this section of the Act provides that the State must assess the progress made in reducing the number of uncovered, low-income children. We proposed to implement the statutory provision requiring assessment of the program and submission of an annual report at § 457.750(a).

At proposed § 457.750(b), we set forth the required contents of the annual report. Specifically, in accordance with the statute, the annual report must provide an assessment of the operation of the State plan in the preceding Federal fiscal year including the progress made in reducing the number of uncovered, low-income children. In addition, we proposed to require that the State report on: (1) progress made in meeting other strategic objectives and performance goals identified by the State; (2) successes in program design and implementation of the State plan; and (3) barriers in program design and implementation and the approaches under consideration to overcome these barriers. We also proposed to require that the State report on the effectiveness of its policies for discouraging the substitution of public coverage for private coverage. Further, we proposed to require that the annual report discuss the State's progress in addressing any specific issues, such as outreach, that it agreed to monitor and assess in its State plan.

In accordance with section 2107(d) of the Act, we also proposed that a State must provide the current fiscal year budget update, including details on the planned use of funds for a three-year period and any changes in the sources of the non-Federal share of plan expenditures. We also proposed that the State must identify the total State expenditures for family coverage and total number of children and adults covered by family coverage during the preceding Federal fiscal year.

We proposed that, in order to report on the progress made in reducing the number of uncovered, low-income children in the annual report, a State must choose a methodology to establish an initial baseline estimate of the number of low-income children who are uninsured in the State and provide annual estimates, using the chosen methodology, of the change in this number of low-income uninsured children at two poverty levels: 200 percent FPL and at the current upper eligibility level of the State's SCHIP program. We noted in the preamble to the proposed rule that, in making these estimates, a State would not be required to use the same methodology that it used in identifying the estimated number of SCHIP eligibles in the State plan.

We proposed to require that a State base the annual baseline estimates on data from either: (1) The March supplement to the Current Population Survey (CPS); (2) a State-specific survey; (3) other statistically adjusted CPS data; or (4) other appropriate data. We also proposed that a State must submit a description of the methodology used to develop these estimates and the rationale for its use, including the specific strengths and weaknesses of the methodology, unless the State bases the estimate on the March supplement to the CPS. We indicated in the preamble to the proposed rule that, once a State submits a specific methodology in the annual report for estimating the baseline numbers, the State must use the same methodology to provide annual estimates unless it provides a detailed justification for adopting a different methodology. We also noted therein that traditionally, most national estimates of uninsured children have been based on the Bureau of Census March Current Population Survey (CPS). We further noted in the preamble that, as the only data source with the capacity to generate State-by-State estimates of uninsured children, the CPS generally is relied upon by policy makers to provide an overall estimate of insurance status and insurance trends in the nation. We also mentioned other major surveys that provide insight into the number of uninsured Americans.

Comment: One commenter recommended that we require annual reports to contain reasonable utilization measures indicating quality and access to care for children with special needs in addition to the general child population. The commenter believed that the Secretary should conduct a focused study of children with special needs. Another commenter noted that States providing dental benefits should report annually on the assistance provided to recipients in accessing needed services.

Response: We are very concerned about services for special needs children, and we agree with the commenters that quality and access are important both with respect to special needs and dental benefits and States are encouraged to address these importantareas in their annual reports. However, requiring such reporting would be inconsistent with the flexibility permitted under the statute. At § 457.495(b) of this final rule, we require States to provide assurances of appropriate and timely procedures to monitor and treat enrollees with chronic, complex or serious medical conditions, including access to specialists experienced in treating the specific medical condition. We leave it to the States to determine what systems and procedures they will implement to ensure enrollees with such conditions have access to quality care consistent with this standard.

In order for States to create systems which fit their unique programs, the methodology for complying with § 457.495 is best left to the State. Reporting on access to dental benefits is subsumed under § 457.495(a), which requires States to include in their plans a description for assuring the quality and appropriateness of care provided under the plan including access to covered services listed in § 457.402(a). Dental services is one of the optional services States may cover under the definition of child health assistance located at § 457.402(a)(16). To the extent that States cover dental services in their SCHIP plans, they must assure access to those services. Therefore, we have not adopted the commenter's suggestion to add a separate requirement regarding dental services.

Comment: One commenter asserted that HCFA exceeds its authority in the annual report requirements at § 457.750(c) that requires States to provide a rationale and description of the methodology used to establish the baseline estimate, if the estimate is based on a source other than the CPS. The commenter contended that the purpose of the annual report is for States to assess the operation of their programs. The commenter also argued that HCFA lacked authority to compel States to adopt the CPS standard. The commenter referred to section 2108 of the Act, which provides that the State shall assess its performance and submit that assessment to the Secretary. The commenter noted that providing a rationale for a methodology made States take additional steps that were not prescribed by the statute. In requiring this rationale, the commenter suggested HCFA came perilously close to dictating the CPS standard, which violates the express terms of title XXI and Executive Order 13132, regarding Federalism. The commenter indicated that under Executive Order 13132, HCFA is required to justify the imposition of any national standard and to look for less burdensome alternatives. The commenter expressed the view that the proposed rule improperly shifts the burden of justifying standards used to evaluate programs from HCFA to the States.

Response: Section 2107(b)(1) of the Act expressly gives the Secretary the authority to require data collection, records maintenance, and reports from the States “at the times and in the standardized format the Secretary may require in order to enable the Secretary to monitor State program administration and to evaluate and compare the effectiveness of State plans.” In order to effectively monitor State program effectiveness in reducing the number of uninsured children, the method of detecting the numbers of uninsured in States and the decline or increase in the uninsured must be known and understood in a standardized manner when possible. The statute uses CPS for formula allocating, so it was suggested as the best available source for State uninsurance levels among low-income children. Most States elected to use the CPS in establishing their initial baselines. However, we recognize the shortcomings of CPS for many States and have therefore provided flexibility to use other sources, both initially and prospectively. The requirement that States explain their alternative methodology is necessary and appropriate in order for HCFA to be able to identify and assess the data provided by States. In addition, we have further clarified that if States elect to use a different data source in re-establishing a baseline, the State must also note in the annual report the CPS estimate for that year, both as a means of providing standardized information across States, using a consistent baseline and to ensure that States are given credit for progress in enrolling children back to the beginning of their programs.

Comment: One commenter requested that HCFA allow States to use biennial State survey figures in assessing changes in uninsurance rather than the annual figures from the CPS. The commenter noted that the CPS data is unreliable for its State and administering an annual survey would be cost-prohibitive for some States.

Response: Section 457.750(c)(1)(ii) provides that a State may base its estimate of the number of uninsured, low-income children from a State-specific survey. Thus, States may use biennial data from State surveys, utilizing statistically relevant adjustments in the off-survey year or by supplementing the biennial data with additional State-specific data from other sources to fulfill the annual reporting requirements of this section. We note that, as stated in the previous response, States will be required to provide a description of the methodology and rationale for using the State-specific survey, in accordance with § 457.750(c)(2).

Comment: One commenter urged HCFA to revise the proposed rule to reflect provisions of the Balanced Budget Refinement Act of 1999 (BBRA), which require that the March Supplement of the CPS be expanded to allow State-level estimates of the number of uninsured children. The commenter believed that using these updated estimates would be preferable to allowing States to establish their own methodologies for estimating the number of uninsured children.

Response: We note that provisions of section 703(b) of BBRA amended Section 2109 of the Act to modify the March Supplement of the CPS to detect real changes in uninsurance rates of children. The BBRA requires future modifications to the Current Population Survey in order to produce statistically reliable annual State-level data on the number of low-income children without health insurance coverage. One modification to the CPS is to include data on children by family income, age, and race, and ethnicity. Adjustments to be made include expanding sampling size used in State sampling units and expanding the number of sampling units in a State. Therefore, with the creation of this requirement, Congress sought to help provide all States with access to more reliable State-level data on the uninsured population through the CPS March Supplement. We have not modified the regulation text to reflect this change, as this data is not expected to be available until October or November 2001. We wanted to leave the regulation text open to future improvements to the CPS or other data sources. Even with the CPS adjustments, there are States that believe they can provide more accurate estimates of the level of uninsured children in their State with methodologies that use other data sources or sources that supplement the CPS data. We believe it is important to allow States this flexibility in developing the most reliable estimate for their State.

Comment: One commenter supported the required collection of information in the annual report, and recommended we require States to also report on the following information in the annual reports:

—Progress in addressing the barriers to access experienced by minority children;

—Grievances, complaints of problems reported relating to enrollment, access, and quality of care as a means of measuring consumer satisfaction, ensuring they are adequate to resolve complaints within a reasonable time frame and that plans use grievance and complaint data to improve quality;

—Cultural competency measures;

—Continuity of care between plans, providers, or programs;

—Special attention to under-served or under-identified populations (for example, homeless children);

—Systematic integration with schools and other community groups;

—Whether primary care and pediatric specialty care capacity is adequate for the number of enrollees;

—Whether plans meet standards for access within reasonable time frames;

—Whether care is in accordance with clinical practice guidelines for quality of care; and

—The proportion of providers who are both Medicaid and separate SCHIP providers among those serving Medicaid and separate SCHIP beneficiaries, and the difference in payment rates to plans or providers in Medicaid and separate SCHIP programs.

—Estimates of the number of uninsured children under the regular Medicaid income thresholds as well as those under the 200 percent FPL and under the State's SCHIP income threshold;

—Data on the method of application for Medicaid and SCHIP (mail-in, outstation-site, Internet, etc.) and enrollment procedures for each program;

—Data on the portion of applicants denied and reason for denial;

—Number of children disenrolled for any reason, the reason for disenrollment, and the number of children disenrolled for nonpayment of premiums;

—Number of children continuously enrolled in Medicaid and/or separate SCHIP program for one year or more;

—Number of children identified by screening as Medicaid eligible and, of those, the number enrolled in Medicaid;

—Number of former Medicaid recipients enrolled in separate SCHIP;

—Data on the number of applicants denied eligibility and the reason for the denial, including that they were disqualified due to current insurance coverage as well as the number of children disqualified due to insurance coverage in a past period, where applicable;

—Number of children who lose coverage at redetermination and the reason for loss of coverage; and

—Data comparing the proportion of children enrolled and using services by gender, race, ethnicity, and primary language to the proportion of such children in the service area.

Response: As noted earlier, HCFA participated in a workgroup led by the National Academy of State Health Policy to develop a template for States' annual reports that have provided an opportunity for States to report the information required in § 457.750 in a standardized way. NASHP released this template to the States and the public in November 2000 for States to use in completing their annual reports for FY 2000. In addition to budget and expenditure data, this will include information from States on their progress in reducing the number of uninsured low-income children, meeting strategic goals and performance measures, the effectiveness of States' policies for preventing substitution of coverage, and identifying successes and barriers in the States' plan design. In addition, the reports provide a forum for evaluating States' progress in addressing specific issues (such as outreach) and the primary language of SCHIP enrollees. We will work with NASHP to include these elements in a revised version of the annual report framework upon publication of this final rule. States will not be expected to address these new elements until they submit their FY 2001 reports. In addition, because the information can be more appropriately displayed in the annual report than in the quarterly reports, we have added a new § 457.750(b)(7) to require States to provide information on primary language of SCHIP enrollees in their annual reports. HCFA will continue to closely review the data collected and reported by the States in their annual reports.

We note that many of these assessment elements were provided by States in their State evaluations. Specifically, as part of the evaluation, States were required, as specified in section 2108(b)(1) of the Act and laid out in the NASHP evaluation framework, to provide information on baseline numbers of uninsured low-income children in the State by income level; levels of previous insurance coverage for applicants and enrollees; and quarterly enrollment statistics including: number of children ever enrolled; new enrollment; number of member months enrolled; average months enrolled; disenrollment including the reasons for disenrollment; unduplicated count of enrollment; and enrollee characteristics, such as income. Many States provided additional information on enrollees' gender, race and ethnicity in the reports. The annual report template is not as extensive as the evaluation template, but many of the same elements are included. Therefore, States will have the ability to indicate in subsequent annual reports that no update is needed since the evaluations were submitted.

Finally, it should be noted that, as we work toward developing and implementing a national core set of performance measures and goals, we will consider the performance goals suggested by the commenters.

Comment: One commenter noted that the preamble to proposed § 457.750(c)(1) was unclear as to whether the program referred to in the phrase “upper eligibility level of the State's program” is Medicaid or SCHIP.

Response: The requirements of subpart G of the regulations regarding strategic planning, reporting, and evaluation apply to separate child health programs and Medicaid expansion programs. Thus, in § 457.750(c)(1), we are referring to the upper eligibility level of the State's SCHIP program, which would be the upper eligibility level of either a Medicaid expansion or a separate child health program. If a State operates a combination program, the upper eligibility level would be the highest eligibility level of either the Medicaid expansion or the separate program.

Comment: One commenter recommended that specific measures be defined either for all SCHIP programs or separately for employer-sponsored insurance model programs based on HEDIS or Healthy People 2000 guidelines, to ensure that all States report similar guidelines and that common agreements could be used across States. Given that some States plan to use an employer-sponsored insurance model for coverage, the commenter suggested that HEDIS measures would seem the most appropriate approach on which to base data collection and reporting systems. For States using an employer-sponsored insurance model, contracts or agreements between the State and carriers would be needed for collection and data provision, this commenter stated. In this commenter's view, States would have to create specific data collection and reporting mechanisms to do this.

Response: The regulations do not require States, including States with premium assistance programs, to collect data on specifically defined measures, except with respect to any core set of performance measures that may be developed by the Secretary at a laterdate. We encourage States to work with health plans, HCFA, and each other to create standards that meet their mutual needs for data. We particularly encourage States using premium assistance program models for SCHIP to explore effective methods of data collection, but recognize that data collection will present particular challenges to these types of programs because the State may not have direct contractual relationships with employer group health plans or with health insurance issuers offering group health insurance coverage. States may need to explore alternative methods of data collection for premium assistance programs, such as consumer surveys and polling.

Comment: One commenter expressed concern that the requirement at § 457.750(b)(5) stating that the annual report must include an updated budget is unnecessary and duplicative of other ongoing requirements, including the HCFA form 37, “Medicaid Program Budget Report—State Estimate of Quarterly Grant Award.”

Response: The requirement for updated budgets in the annual report is necessary for the sound administration of SCHIP. Annual reporting of updated budgeting with three-year projections, including changes in sources of non-Federal funding and details on the planned uses of all funds, is essential to sound financial management of this program. Annual updated reports are also essential to HCFA as it monitors and anticipates the financial needs of States implementing SCHIP programs. Because States have up to three years to spend each annual allotment, a three-year budget is useful to show if States are planning to use their unused allotments in the succeeding two fiscal years or if they anticipate a shortfall in Federal funding. Therefore, we have decided to retain this requirement for a three-year budget in the final regulation. However, we are no longer requiring a three-year budget with all amendments. Instead, we have limited the requirements at § 457.80 to a one-year budget only with amendments that have a significant budgetary impact. A more detailed discussion of this issue can be found in the comments and responses to § 457.80.

Comment: One commenter noted that in § 457.750(b)(5) of the proposed rule, States are required to include in the annual report an updated budget for the current Federal fiscal year. The commenter states that HCFA did not take into account the State appropriations process and the fiscal year used by the State as opposed to the Federal fiscal year. For example, Illinois has a July-June fiscal year, with the legislature appropriating funds for the final Federal quarter (July-September) in May. Therefore, the commenter noted, the last quarter in the SCHIP annual report will be an estimate. The commenter believed that the regulations regarding the annual report should be revised to permit States to estimate budgets for the final Federal quarter.

Response: We have modified § 457.750(b)(5) as proposed. Instead of requiring an annual budget for the current fiscal year, we now require an annual updated budget for a three-year period. We realize that the three-year budgets States are required to submit annually in fulfilling the requirements of § 457.750(b)(5) are based on projections and may vary from actual expenditures for a variety of reasons. However, we believe it is important to have this information to ensure that States have adequately planned for the program and to analyze spending allotments.

7. State Evaluations (§ 457.760)

In proposed § 457.760 we set forth the requirement that States submit a comprehensive evaluation by March 31, 2000 that analyzes the progress and effectiveness of the State child health program. In the evaluation, a State must report on the operation of its Medicaid expansion program, separate child health program, or combination program. As specified in section 2108(b)(1)(B) of the Act, the State evaluation must include all of the following:

• An assessment of the effectiveness of the State plan in increasing the number of children with creditable health coverage. In addition, the State must report on progress made in meeting other strategic objectives and performance goals identified by the State plan.

• An assessment of the State's progress in meeting other strategic objectives and performance goals identified by the State plan.

• A description and analysis of the effectiveness of elements of the State plan, including the following elements:

—The characteristics of the children and families assisted under the State plan, including age of the children and family income. The State also must report on children's access to, or coverage by, other health insurance prior to the existence of the State program and after eligibility for the State program ends (the child is disenrolled). As an optional strategy, the State also should consider reporting on other relevant characteristics of children and their families such as sex, ethnicity, race, primary language, parental marital status, and family employment status.

—The quality of health coverage provided under the State process or other process that is used to assure the quality and appropriateness of care.

—The amount and level of assistance including payment of part or all of any premiums, copayments, or enrollment fees provided by the State.

—The service area of the State plan (for example, Metropolitan Statistical Area (MSA) or non-MSA).

—The time limits for coverage of a child under the State plan. As an optional strategy, the State should consider reporting the average length of time children are assisted under the State plan.

—The extent of substitution of public coverage for private coverage and the State's effectiveness in designing policies that discourage substitution.

—The State's choice of health benefits coverage, including types of benefits provided and the scope and range of these benefits, and other methods used for providing child health assistance.

—The sources of non-Federal funding used in the State plan.

• An assessment of the effectiveness of other public and private programs in the State in increasing the availability of affordable quality individual and family health insurance for children.

• A review and assessment of State activities to coordinate the SCHIP plan with other public and private programs providing health care and health care financing, including Medicaid and maternal and child health services.

• An analysis of changes and trends in the State that affect the provision of accessible, affordable, quality health insurance and health care to children.

• A description of any plans the State has for improving the availability of health insurance and health care for children.

• Recommendations for improving the SCHIP program.

Comment: One commenter indicated that the State evaluation requirements should be less prescriptive and require an analysis of the effectiveness of elements the State may include rather than requiring an analysis of all eight elements listed at § 457.760(c). The commenter asserted that such policy would allow States to identify and address areas relevant to their own State plans. The commenter suggested that we revise this section to provide that “a description and analysis of elements of the State plan may include:” the elements in paragraph (c) of this section.

Response: States were statutorily required to report on the progress of the elements set forth in § 457.760(c) in the State evaluation, due to HCFA on March 31, 2000, and we modeled the proposed regulation text after the statute. Section 2108(b) of the Act specifies the contents of the State evaluation. HCFA therefore does not have discretion to make these requirements optional for States. In addition, because all the States have submitted the required evaluation, we have removed this provision from the final rule. Any request for future evaluations will be based upon the requirements in the statute for evaluations and annual reports on the program.

Comment: We received several comments expressing appreciation that the guidance set forth in the preamble to the proposed rule regarding the evaluation closely followed the evaluation framework developed by NASHP and the State workgroup. However, several commenters asserted that the information provided in State evaluations should not be used to establish model programs and practices. Rather, they noted, States should be given the freedom to design programs that best suit the needs of their population and circumstances, and information provided in the evaluation should focus on how the States have used the flexibility allowed by the program to create unique and successful plans.

Response: We are using the evaluations to identify model practices. We believe that the identification of model practices should not involve comparing unlike programs or overlooking the unique circumstances of each State. Many States have been eager to learn about other State practices. We envision model practices as a means of sharing information with States and other interested parties on how other States have successfully implemented certain parts of their program. We develop model practices not as a means of judging or evaluating programs, but rather as a means of sharing those practices that have proven successful for one State so that other States may determine the merit of adopting similar practices in their own SCHIP implementation.

Comment: One commenter recommended that we require States to report on the provision of services as well as the participation rates of pediatricians and other child health care providers in the program. Additionally, the commenter recommended that we require States to report the average cost-sharing requirements for families who choose to enroll in SCHIP rather than employer-provided coverage. The commenter believed that we should also require States to include an evaluation of the impact States' efforts to minimize substitution have had on children with special health care needs and their access to services. The commenter believed that HCFA should also require States to include evaluations of their screen and enroll processes.

Response: We do not agree with the commenter's suggestion. The evaluation template developed by the National Academy for State Health Policy reflects those elements specified in section 2108(b)(1)(B) of the Act. To this extent, it did include assessment questions on the State's cost sharing and its effects on participants as well as questions regarding the State's screen and enroll process and its substitution policies and results of monitoring rates of substitution. We have further included a provision at § 457.353 that specifically requires States to monitor and evaluate the effectiveness of the screening process. The regulatory requirements are consistent with the statute. In some cases, States included additional data or other information such as the data suggested by the commenter, in their SCHIP evaluations as additional measures of their progress toward strategic objectives of that State.

Comment: One commenter supported the proposed categories of evaluation, but requesting that we require more frequent reporting and evaluation.

Response: Section 2108(b) of the Act, as implemented in § 457.760, required States to submit evaluations by March 31, 2000. We believe the information States will be providing through the quarterly and annual reports required by § 457.740 and § 457.750 respectively, will be sufficient to allow ongoing assessments of States' SCHIP programs, making more frequent reporting and formal evaluations unnecessary and overly burdensome on States. The statute did not include a subsequent requirement for an annual evaluation and we have, therefore, removed this provision from the final rule.

Comment: One commenter recommended that HCFA clarify § 457.750(c)(1) by replacing the phrase “coverage by other health insurance prior to the State plan” with “coverage by other health insurance prior to coverage under the State plan.”

Response: Because we have deleted this provision from the final rule, we have not adopted the commenter's suggestion.

Comment: One commenter recommended that HCFA encourage States to build on existing data collection efforts and systems, including State title V efforts, in developing overall SCHIP evaluation efforts and in collection of data.

Response: We encourage States to build on existing databases and title V efforts, as well as public-private partnerships in order to facilitate the development and implementation of information tracking systems and SCHIP program evaluation efforts.

G. Subpart H—Substitution of Coverage

1. Basis, Scope, and Applicability (§ 457.800)

Title XXI requires that States ensure that coverage provided under SCHIP does not substitute for coverage under either private group health plans or Medicaid. Section 2102(b)(3)(C) of the Act requires that State plans include descriptions of procedures used to ensure that the insurance provided under the State child health plan does not substitute for coverage under group health plans. Another provision in title XXI relating to substitution of coverage is section 2105(c)(3)(B), which sets out the conditions for a waiver for the purchase of family coverage as described in § 457.1010. Under this provision, States must establish that family coverage would not be provided if it would substitute for other health insurance provided to children.

In addition, title XXI contains several provisions aimed at preventing SCHIP from substituting for current Medicaid coverage. First, sections 2102(a)(2) and 2102(c)(2) of the Act requires States to describe procedures used to coordinate their SCHIP programs with other public and private programs. Second, section 2105(d) of the Act includes “maintenance of effort” provisions for Medicaid eligibility. That is, under section 2105(d) of the Act, a State that chooses to create a separate child health program cannot adopt income and resource methodologies for Medicaid children that are more restrictive than those in effect on June 1, 1997. Furthermore, section 1905(u)(2)(b) of the Act also provides that a State that chooses to create a Medicaid expansion program is not eligible for enhanced matching for a separate coverage provided to children who would have been eligible for Medicaid in the State under the Medicaid standards in effect on March 31, 1997. Finally, section 2102(b)(3)(B) of the Act requires that any child who applies for a separate child health program must be screened for Medicaid eligibility and, if found eligible, enrolled in Medicaid.

This subpart interprets and implements section 2102(b)(3)(C) of the Act regarding substitution of coverageunder group health plans and sets forth State plan requirements relating to substitution of coverage in general and specific requirements relating to substitution of coverage under premium assistance programs. These requirements apply only to separate child health programs.

Comment: Many commenters questioned the magnitude of the risk for substitution of private group health plan coverage by SCHIP coverage for children. Because the size of the risk of substitution by SCHIP coverage offered under both employer-sponsored insurance programs and non-employer-sponsored insurance programs is unclear, and because of the harm that substitution prevention policies may inflict, the commenters encouraged HCFA not to put forth a policy to prevent substitution that goes beyond what is clearly required by the statute. Many commenters also recommended that we revisit our policy on substitution because of their concern that waiting periods and other substitution prevention policies are causing significant harm to families with children with special health care needs and argued that such families can ill afford to go without coverage for any period of time.

Response: We have revisited our policy on substitution and made several changes. With respect to substitution policies outside of the context of premium assistance programs, we note that the proposed regulatory text at § 457.805 requires only that the State plan include reasonable procedures to prevent substitution. This approach permits State flexibility and implementation of policies based on the emerging research regarding substitution and on State experiences with substitution.

Our review of States' March 31, 2000 evaluations indicated that in those States with data on substitution of private coverage with SCHIP coverage, there was little evidence that substitution was as great an issue as initially anticipated.

Thus, we have revised the policy stated in the preamble to the NPRM regarding substitution procedures relating to SCHIP coverage provided outside of programs that offer premium assistance for coverage under group health plans as follows: States that provide coverage to children in families with incomes at or below 200 percent of FPL must have procedures to monitor the extent of substitution of SCHIP coverage for existing private group health coverage, as was the policy for such coverage provided to families under 150 percent of FPL proposed in the preamble to the NPRM.

States that provide coverage to children in families with incomes over 200 percent of FPL should, at a minimum, have procedures to evaluate the incidence of substitution of SCHIP coverage for existing private group health coverage. In addition, States offering coverage to children in families over 200 percent of FPL must identify in their State plans specific strategies to limit substitution if monitoring efforts show unacceptable levels of substitution. States must determine a specific trigger point at which a substitution prevention mechanism would be instituted, as described in the State plan. For coverage above 250 percent of the FPL, because evidence shows that there is a greater likelihood of substitution at higher income levels, States must have substitution prevention strategies in place, in addition to monitoring.

Although a period of uninsurance is one possible substitution prevention procedure, we invite States to propose other effective strategies to limit substitution. States may submit amendments to their State plans if they would like to modify their current policies in light of the policies discussed here. We plan to work closely with each State to develop appropriate substitution strategies, monitoring tools, and trigger mechanisms.

For premium assistance programs, we have revised our substitution policy in this final rule in two areas. We have eliminated the requirement for a 60 percent minimum employer contribution. We will no longer mandate a specific level of contribution, since a substantial employer contribution must be made in order for coverage subsidized through employer plans to be cost-effective, as required under § 457.810. States will be expected to identify a reasonable minimum employer contribution level and provide justification for that level, including data and other supporting evidence, that will be reviewed in the context of the State plan amendment process. In addition, as proposed in the NPRM, States with premium assistance programs must monitor employer contribution levels over time to determine whether substitution is occurring and report their findings in their State annual reports.

The identification of the minimum employer contribution and the monitoring process will help ensure that SCHIP funds are being used to supplement the cost of employer-sponsored insurance, not supplant the employers' share of the cost of coverage. While these revisions are intended to provide additional State flexibility to develop premium assistance programs and provide coverage to families, it is important to note that the cost-effectiveness test established by title XXI and set forth in § 457.810 must be met in all cases.

The second change we are making relates to the required waiting period of uninsurance. We have retained the requirement for a minimum 6-month period without group health coverage, but will permit exceptions to the waiting period, as discussed in more detail in the comments and responses to section § 457.810.

2. State Plan Requirements: Private Coverage Substitution (§ 457.805)

The potential for substitution of SCHIP coverage for private group health plan coverage exists because SCHIP coverage may cost less or provide better coverage than coverage some individuals and employers purchase with their own funds. Specifically, employers who make contributions to coverage for dependents of lower-wage employees could potentially save money if they reduced or eliminated their contributions for such coverage and encouraged their employees to enroll their children in SCHIP. At the same time, families that make significant contributions towards dependent group health plan coverage could have an incentive to drop that coverage and enroll their children in SCHIP if the benefits would be comparable, or better, and their out-of-pocket costs would be reduced.

In accordance with section 2102(b)(3)(C) of the Act, we proposed at § 457.805 to require that each State plan include a description of reasonable procedures that the State will use to ensure that coverage under the State plan does not substitute for coverage under group health plans.

We opted not to propose specific procedures to limit substitution. Instead, we discussed in detail reasonable procedures that States may use to prevent substitution of coverage. Specifically, we stated in the preamble to the NPRM that we would consider the following to be reasonable procedures for addressing the potential for substitution:

• States that provide coverage to children in families at or below 150 percent of the Federal poverty line (FPL) should, at a minimum, have procedures to monitor the extent of substitution of that coverage for existing private group health coverage.

• States that provide coverage to children in families between 150 and200 percent of FPL should, at a minimum, have procedures to study the incidence of substitution of that coverage for existing private group health coverage. In addition, States should specify in their State plans the steps they will take to prevent substitution in the event that the States' monitoring efforts discover substitution has occurred at an unacceptable level.

• States that provide coverage to children in families above 200% of FPL should implement, concurrent with program implementation, specific procedures or a strategy to limit substitution.

We noted that we would ask States to assess the procedures to limit substitution in their evaluations submitted in March of 2000. We also asked all States that specified in their plans that they would monitor substitution to submit information on substitution in their annual reports.

We also addressed the issue of applying substitution provisions to the Medicaid eligibility group for the “optional targeted low-income children”, which was added to section 1902(a)(10)(A)(ii)(XIV) of the Act pursuant to section 4911 of the BBA. In the NPRM we clarified that States may not apply eligibility-related substitution provisions, such as periods of uninsurance, to the “optional targeted low-income children” group, because such eligibility conditions are inconsistent with the entitlement nature of Medicaid. We have retained this policy in this final regulation. States that currently apply eligibility-related substitution provisions to optional targeted low-income children will need to come into compliance with this clarified policy. States that have not already come into conformity with this policy will have 90 days from the date of this notice to do so and must submit a State plan amendment in compliance with § 457.65(a)(2). We recognize that States expanding Medicaid to optional targeted low-income children at higher income levels may be particularly concerned about the potential for substitution of coverage. States that want to maintain waiting periods for the optional targeted low-income children group may want to submit section 1115 demonstration requests for approval of substitution provisions. HCFA will consider section 1115 demonstration requests on a case-by-case basis.

Comment: Although neither the preamble nor the proposed regulatory text explicitly prescribed a mandatory waiting period or period without group health insurance, as a condition of eligibility in separate child health programs that are not providing premium assistance for group health plans, many commenters expressed their dislike for the Department's policy implemented in the course of approving State plans and plan amendments, of mandating the imposition of periods without insurance for populations over 200 percent of the FPL.

Many commenters indicated that waiting periods are unnecessary in general because they block access to care without any proof of their effectiveness in preventing substitution. Some commenters stated that the data on the significance of substitution has been inconclusive. One commenter referred to recent data from the Current Population Survey (CPS) on trends in coverage for low-income children that, in their view, raised serious questions about the magnitude of any crowd out effect of expansions in publicly-funded coverage for children. Another concern raised was that waiting periods without insurance impose a significant hardship for families who may be struggling to keep up premium payments, obtain care for children with special health care needs, or get by with inadequate private coverage for their children.

Response: Our review of States' March 31, 2000 evaluations indicated that in those States with data on substitution of private coverage with SCHIP coverage, there was little evidence that substitution was as great an issue as initially anticipated. However, because of the current lack of conclusive data around the level of substitution which may be occurring below 200 percent of FPL, we maintain that monitoring of substitution of coverage in SCHIP is critical.

As noted above, we have revised the policy stated in the preamble to the NPRM regarding substitution procedures relating to SCHIP coverage provided outside of programs that offer premium assistance for coverage under group health plans as follows:

• States that provide coverage to children in families at or below 200 percent of FPL must have procedures to monitor the extent of substitution of SCHIP coverage for existing private group health coverage, as was the policy for such coverage provided to families under 150 percent of FPL proposed in the preamble to the NPRM.

• At a minimum, States that provide coverage to children in families with incomes over 200 percent of FPL should have procedures to evaluate the incidence of substitution of SCHIP coverage for existing private group health coverage. In addition, States offering coverage to children in families over 200 percent of FPL must identify in their State plans specific strategies to limit substitution if monitoring efforts show unacceptable levels of substitution. States must monitor the occurrence of substitution and determine a specific trigger point at which a substitution prevention mechanism would be instituted, as described in the State plan.

• For coverage above 250 percent of the FPL, because evidence shows that there is a greater likelihood of substitution at higher income levels, States must have substitution prevention strategies in place, in addition to monitoring.

Although a period of uninsurance is one possible substitution prevention procedure, we invite States to propose other effective strategies to limit substitution. States may submit amendments to their State plans if they would like to modify their current policies in light of the policies discussed here. We plan to work closely with States to develop appropriate substitution strategies, monitoring tools, and trigger mechanisms. As part of monitoring for substitution of coverage, States should also study the extent to which anti-substitution policies require children who have lost group health coverage through no fault of their own or their employer to wait to be enrolled in SCHIP. To the extent that monitoring finds that such children are forced to go without coverage, States should consider adjustments to their substitution prevention policies that permit exceptions for children who should not be the target of such policies. We will continue to ask States to assess their substitution prevention procedures in their annual reports.

Finally, we note that because the regulatory text at § 457.805 required that the State plan include reasonable procedures to prevent substitution and made no distinction for eligibility levels for coverage under State plans, we have not revised the regulation text. It is consistent with our revised policy.

Comment: Several commenters believed that States should be allowed to establish guidelines that would allow families to drop coverage without penalty of a SCHIP-required waiting period and to enroll the child or children in the State's SCHIP program if they are paying more than they can afford for the child's insurance. The commenters indicated that, in some cases, the child may have special health needs and/or the family may be paying for insurance that does not cover many of the child's needs but serves only as insurance against a catastrophic event. In addition, some commenters suggested that States not be allowed to impose periods of uninsurance that impede thedelivery of preventive care and immunizations consistent with the AAP Guidelines for Health Supervision III and Bright Futures Guidelines for Health Supervision of Infants, Children and Adolescents.

Response: As stated above, periods of uninsurance will not be required unless coverage is provided via premium assistance through group health plans, coverage is provided to children with significantly higher income levels, or substitution has been identified as a problem in the State. Furthermore, in the case of States with premium assistance programs, we continue to permit States to cover such children under a separate child health program (outside of coverage through premium assistance programs) during the waiting period, as stated in the preamble to the proposed rule. The required period of uninsurance applies only to SCHIP coverage provided through group health plans.

States are therefore able to enroll special needs children, and those in need of preventive care and immunizations, in SCHIP in a timely fashion so as not to disrupt the provision of needed health care services. To the extent a State chooses to adopt periods of uninsurance, the State may want to consider exceptions to the period of uninsurance to address issues raised by the commenters. We note, however, that access to immunizations is unlikely to be proposed as an exception since virtually all younger children would thereby be exempt.

Comment: One commenter urged the Department to view State substitution prevention efforts as a comprehensive plan, rather than isolating specific pieces that may or may not measure up to artificial Federal guidelines. In addition, the commenter noted that each State has developed a substitution prevention strategy that is applicable to the demographic and economic situation in the State, and State plans should therefore be judged in their entirety, not in a piecemeal fashion.

Response: We agree that State's substitution prevention efforts should be considered in the context of the entire State plan with consideration given to a State's particular needs and goals. To this end, we have retained a flexible regulatory requirement regarding substitution and indicated that HCFA will incorporate additional flexibility in its plan review process.

Comment: One commenter agreed with the language in proposed § 457.805 and suggests that HCFA limit States' discretion to use fears about substitution as an excuse to deny health coverage and recommended that final regulations bar waiting periods (outside of the premium assistance arena) that either: (1) Impose harm on children by going beyond 6 months or deny coverage (except where the employee voluntarily drops employment-based coverage without any change in circumstances) for pregnant women, children with disabilities, or children with preexisting conditions as defined by HIPAA; or (2) deny SCHIP benefits to children without employer-sponsored insurance for reasons unrelated to SCHIP (recent adoption, loss of job, end of COBRA coverage, death of a parent, moving outside the plan's service area, or an increase in premiums that was unaffordable to the family).

Response: As indicated above, outside of premium assistance programs, States have broad discretion to develop substitution prevention policies that best serve their particular populations. States that choose to retain or impose periods of uninsurance are encouraged to include exceptions that help prevent the imposition of undue hardship under a range of circumstances, including loss of insurance through no fault of the family, extreme economic hardship, death of a parent, etc.

Comment: One commenter indicated that, while in agreement that our proposed policy on substitution for the lower income population is reasonable, HCFA should carefully monitor State programs for children under 200% FPL to assure that no substitution problems emerge.

Response: We will continue to review State plan amendments to ensure that States monitor the occurrence of substitution at all income levels, and to review annual reports for any reported experiences of substitution. As stated in previous guidance from HCFA, in the event monitoring efforts indicate unacceptable levels of substitution, HCFA may reconsider the requirements intended to prevent substitution of coverage.

Comment: One commenter indicated confusion about the preamble language which “does not require” the use of eligibility-related substitution prevention provisions such as periods of uninsurance for the Medicaid eligibility group for the “optional targeted low income children,” but goes on to say that States that currently apply eligibility-related substitution prevention provisions to optional targeted low-income children “will need to come into compliance with this proposed policy.” The commenter believed our language should have indicated we would “not allow” such States to impose a waiting period as opposed to “not require.”

Response: The commenter is correct. The policy is that the Medicaid statute does not allow the use of eligibility-related substitution prevention provisions such as periods without insurance for “optional targeted low income children” (outside of demonstration projects under the authority of section 1115 of the Act).

Comment: One commenter asked for clarification whether the proposed requirements with respect to substitution at § 457.800(c) applied only to separate child health programs and not to Medicaid expansion programs.

Response: As noted by the commenter, this point needs clarification. This subpart, as stated at § 457.800(c), applies only to separate child health programs. We have removed the reference to subpart H at § 457.70, which had indicated the requirements that apply to Medicaid expansion programs.

Comment: Several commenters indicated support for the clarification that waiting periods are not allowed in Medicaid expansions (outside of section 1115 demonstrations). One commenter asserted that this is consistent with Congressional intent that all Medicaid rules should apply to title XXI expansions of Medicaid. Another commenter suggested using caution when granting 1115 demonstrations to implement substitution prevention provisions when expanding Medicaid eligibility.

Response: We agree with the first two points and note the concerns raised in connection with section 1115 demonstrations.

Comment: One commenter indicated that States should be permitted the flexibility to implement the substitution provisions that they determine are necessary for their own SCHIP programs, and that this should be the rule whether the program is a Medicaid expansion or a separate program. Another commenter believed that it is unfair not to require a six-month waiting period for Medicaid expansion programs because it presents an unfair barrier to separate child health programs.

Response: The final rule allows States the flexibility to identify and implement substitution prevention provisions that are necessary for their own separate child health programs, within the parameters discussed above. Title XXI explicitly requires States to have substitution policies. By contrast, waiting periods are not permitted in Medicaid expansion programs outside of section 1115 demonstrations.

Comment: One commenter stated that HCFA should consider whether the imposition of substitution provisions, such as mandated periods of uninsurance applied to adults under family coverage waivers, would have an undesirable effect on the children's access to services.

Response: We agree that waiting periods may have an adverse impact on children's access to care. In this final rule, HCFA is requiring States to monitor the extent to which substitution prevention policies require children who have lost group health coverage, through no fault of their own or on the part of their employer, to wait to be enrolled in SCHIP. If monitoring shows that such children are forced to go without coverage, States should consider adjustments to their substitution prevention policies that permit exceptions for children who should not be the target of such policies. Because research shows that the risk of substitution is greater when a State operates a premium assistance programs, we will continue to require that such coverage be available after a six month period of uninsurance. However, this policy does not prevent States from covering SCHIP enrollees, whether children or families, through a separate child health program or through Medicaid. The final rule also permits States to adopt reasonable exceptions to the waiting period requirement. (See the discussion of the comments and responses on § 457.810.) Thus, the premium assistance substitution policy does not require that children be uninsured prior to enrolling in a premium assistance program.

Comment: One commenter believed that collaboration with the Child Support Enforcement Program is necessary and that any efforts to monitor potential substitution of private employer group coverage should include a review for coverage which may already be provided by a noncustodial parent, or which may potentially be available through a noncustodial parent pursuant to a support order. The commenter also asked that the definition of substitution be clarified and recommended a definition of “equivalent to SCHIP coverage” or some State-defined minimum requirements. The commenter appeared to believe that coverage inferior to SCHIP coverage carried by a noncustodial parent should not be considered health insurance coverage when determining whether SCHIP coverage is substituting for private group health insurance coverage.

Response: We agree that a State's SCHIP program should coordinate with the State's Child Support Program and that coverage under, or available through, a noncustodial parent's health plan should be considered by the State with respect to its substitution policies. The commenter is concerned that coverage available from the noncustodial parent be equal to SCHIP coverage or some State-defined minimum coverage before a concern for substitution should arise. We note that this final rule does not require that children be denied SCHIP coverage if the noncustodial parent has insurance that could cover the child. CSE agencies should be informed about the availability of SCHIP coverage because, as the commenter suggests, SCHIP coverage might provide better access to care than coverage potentially available through the noncustodial parent. The statutory provisions do, however, preclude SCHIP eligibility for a child who already has coverage under a group health plan or health insurance coverage, as those terms are defined under HIPAA. The only exceptions to this policy are if the child does not have “reasonable geographic access” to coverage, as described in subpart C, or if the policy meets the definition of “excepted benefits” under HIPAA.

3. Premium Assistance Programs: Required Protections Against Substitution (§ 457.810)

We proposed under § 457.810 to require any State that implements a separate child health program under which the State provides premium assistance for group health plan coverage, to adopt specific protections against substitution. A State must describe these protections in the State plan. In the NPRM, we proposed that the following four requirements would need to be met to protect against substitution:

Minimum period without group health plan coverage. The child must not have been covered by a group health plan during a period of at least six months prior to application for SCHIP. States may require a child to have been without such insurance for a longer period, but that period may not exceed 12 months. States may permit exceptions to the minimum period without insurance if the prior coverage was involuntarily terminated. We noted that newborns who are not covered by dependent coverage would not be subject to a waiting period. We also noted that the waiting period applies only to coverage through a group health plan, not SCHIP or Medicaid coverage. If an otherwise eligible child does not meet the requirement for a minimum period without group health plan coverage, the State can enroll the child in SCHIP under a separate child health program without purchasing employer-sponsored coverage for the interim waiting period, and can still consider the child uninsured for purposes of the waiting period. That is, coverage under a separate child health program or Medicaid does not count as group health insurance coverage for purposes of the required waiting period prior to enrollment in SCHIP coverage provided via premium assistance programs.

Employer contribution. The employer must make a substantial contribution to the cost of family coverage, equal to 60 percent of the total cost of family coverage. States proposing a minimum employer contribution rate below this standard must provide the Department with data that demonstrate a lower average employer contribution in their State and support a State's contention that the lower contribution level will be equally effective in ensuring maintenance of statewide levels of employer contribution. In addition, the employee must apply for the full premium contribution available from the employer.

Cost-effectiveness. The State's payment under its premium assistance program must not be greater than the payment that the State otherwise would make on the child's behalf for other coverage under the State's SCHIP program.

State evaluation. The State must collect information and evaluate the amount of substitution that occurs as a result of payments for group health plan coverage and the effect of those payments on access to coverage. To conduct this evaluation, States must assess the prior insurance coverage of enrolled children. States may obtain information on prior coverage through the enrollment process, separate studies of SCHIP enrollees, or other means for reliably gathering information about prior health insurance status. In the preamble to the NPRM, we set forth specific examples of questions States could include in SCHIP applications to evaluate the prevalence of substitution. We noted that we would reevaluate our position on the requirements for States that subsidize employer-sponsored plans based on our review of the State evaluations due March 31, 2000.

Comment: One commenter noted that employer ignorance of changing public benefit rules is one of the most effective safeguards against widespread substitution, and things such as competitive market pressures and rising health costs, not changing Medicaid and SCHIP coverage rules, drive reductions in employer subsidies for healthcoverage. Further, the commenter stated that the safeguard of employer ignorance ends when the employer is contacted by a State agency and becomes a partner in purchasing SCHIP coverage. Another commenter indicated their belief that HCFA is inconsistent by indicating that it will scrutinize SCHIP programs subsidizing employer-sponsored insurance while suggesting (in § 457.90) that “Employer-based outreach is another avenue for providing * * * information on children's insurance programs.”

Response: We note these comments and have sought to craft a substitution prevention policy that reflects the different pressures on the employer market and that balances States' desire for developing premium assistance programs with the risk that such programs will not expand coverage for children, but merely substitute employer contributions with SCHIP funds. There are both benefits and risks of partnering with employers in designing premium assistance programs. We have provided new flexibility to States to design such programs under these final rules, while retaining some requirements that are critical for preventing substitution.

Comment: Many commenters indicated their strong disagreement with the mandatory six-month minimum period without group health insurance coverage prior to application for SCHIP premium assistance coverage through group health plans. Their arguments against this policy included that it has no basis in statute, that it is inconsistent with other SCHIP strategies to prevent substitution which allow State flexibility, and that waiting periods block access to coverage and care for an arbitrary period without evidence of the effectiveness of any particular length of waiting period in preventing substitution. Some of these commenters added that if HCFA maintains a requirement for a period without employer-sponsored insurance prior to eligibility for SCHIP coverage obtained through premium assistance programs, that the minimum period be changed to 3 months. One commenter noted that there is no State system in place to confirm if and when an individual was previously covered under group health plans and that requiring States to establish such a system would be onerous and administratively costly.

Response: We have revisited and made revisions to our policy on substitution generally, and our policy on required periods of uninsurance, with respect to premium assistance for coverage under group health plans.

As discussed above, when a State operates premium assistance for group health insurance coverage, the State is no longer required to comply with the requirement that the employer contribution be at least 60 percent of the premium cost. The other requirements described in the proposed rule would continue to apply; namely, the requirements that the employee eligible for the coverage apply for the full premium contribution available from the employer, that such coverage be cost-effective, and that the State evaluate the amount of substitution that occurs as a result of payments for group health insurance coverage and the effect of those payments on access to coverage.

In addition, because of the greater likelihood of substitution of SCHIP coverage for group health insurance coverage offered by employers, we are retaining the requirement for a 6-month waiting period, but allowing States greater flexibility to vary from this general requirement. The default substitution prevention mechanism will be a period of uninsurance of at least six months, and not more than 12 months, without group health insurance prior to eligibility for SCHIP premium assistance for coverage through group health insurance plans offered by employers. States may also develop reasonable exceptions to the required waiting period when they can identify limited circumstances in which substitution is less likely to occur. For example, if a State is targeting its premium assistance program to certain employers that provide only very limited health insurance coverage, a waiting period may not necessarily be required since the likelihood of substitution would be limited in those circumstances.

In proposing exceptions to the six-month waiting period, States must provide reasonable justification for such exceptions, including data and other supporting evidence, as appropriate, which will be reviewed by HCFA in the context of the State plan amendment process. We have also listed several specific exceptions to the waiting period that may be granted, including involuntary loss of coverage due to employer termination of coverage for all employees and dependents, economic hardship, and change to employment that does not offer dependent coverage. And, as noted above, States also must monitor their premium assistance programs to determine whether substitution may be occurring. We plan to work closely with States interested in providing coverage via premium assistance for group health insurance coverage in order to provide technical assistance and help achieve a balanced approach that allows premium assistance plans to be implemented with appropriate safeguards to prevent substitution.

Comment: Many commenters expressed concern about the 60 percent employer contribution requirement at proposed § 457.810(b)(2) for SCHIP coverage provided through employer-sponsored insurance because employer contributions may vary in a State based on region, type and size of business, and wage levels of employees. The commenters' expressed the position that HCFA has exceeded its statutory authority in setting this benchmark, and they argued that it is unnecessary. Furthermore, the commenters stated that few employers contributing less than 60 percent of the premium would meet the required cost effectiveness test. The commenters noted that the statutory requirement that the purchase of employer-sponsored insurance with SCHIP funds must be cost effective is the most appropriate tool to use. One commenter indicated that the employer contribution standard should not be based on a statewide average of all businesses, but should be appropriate to, and specific to, those businesses which would participate in the SCHIP program that would utilize an existing health purchasing cooperative consisting of small businesses. One commenter also indicated that the level of substitution is unlikely to be affected by the 60 percent requirement, because employers would probably not base their health coverage decisions on the needs of employees eligible for premium assistance who, for many companies, represent only a small fraction of their overall employee pool. The commenter stated that crowd out occurs because of individual rather than corporate decisions, such as when individual employees elect to drop private coverage for low-cost or no-cost public assistance. Finally, the 60 percent would be problematic for some commenters' States because those States are operating under approved 1115 demonstrations to allow premium assistance when employers contribute at least half the cost of coverage.

Another commenter cited a survey that showed that in regions other than on the east coast, very few employers pay any part of the dependent premium. The recent survey indicated on average, large employers pay 85.51% of the employee premium and 17.62% of the dependent premium, and that small employers contribute 78.06% of the employee premium and 5.14% of the dependent premium. According to this commenter, HCFA's requirementactually prevents access for many children.

Several commenters that disagreed with the 60 percent employer contribution requirement suggested it be deleted in favor of maintaining a cost-effectiveness test while requiring States to simply describe how they plan to monitor employer contribution percentages to detect any reductions in the contributions and assess whether reductions may be related to SCHIP premium assistance. Other commenters also recommended subjecting employers to a maintenance of effort requirement with respect to the contribution level.

One commenter recommended that if a minimum requirement is maintained, States be permitted to establish different standards for different kinds of employers, including making distinctions based on whether or not the employer has previously offered health insurance coverage and on the wage distribution of the employer's work force.

It was one commenter's opinion that failure to allow State flexibility on the employer contribution will stifle many potential innovative approaches to reach uninsured children of low-wage workers and that States will be unable to enroll sufficient numbers of children in these programs to justify the administrative expense. In addition, in this commenter's view, the 60 percent requirement may result in many families who would prefer premium assistance being forced to enroll their children in the regular SCHIP program, and force the State to forego any employer contribution. The commenter also noted that, if more low-wage workers decline dependent coverage when it is offered, employers with many low-wage workers may stop offering coverage, causing a long-term, population-wide shift from private to public sources of coverage.

Another commenter stated that the small employers in its State do not pay 60 percent of family health coverage premiums and, in fact, most do not cover dependents. The commenter believed that they should be allowed to include in premium assistance programs employers who are currently not covering dependents. They suggested a rule that would only include employers who did not cover dependents as of a certain date, or who paid less than a predetermined amount for coverage as of that date. The State would then use local objective data (and not “outdated, national surveys of large employers”) to determine the contribution amount appropriate for the locality. One commenter indicated that our proposed policy would punish families who find jobs with employers who contribute less than 60 percent and encourage them to take jobs with employers that don't offer family coverage.

A commenter also suggested that whatever standard is adopted, there should be exceptions in instances in which employer contribution percentages drop solely because of an increase in premiums or where an employer drops its level of contribution because of documented and significant economic declines. In such cases, the commenter argued, crowd out isn't a factor in the reduced employer contribution level, and failure to allow employers in such circumstances to reduce their contribution levels may result in employees and their families losing their insurance. One commenter said, regarding the 60 percent employer contribution, that HCFA should not presume the cost neutrality of State initiatives to link title XIX/XXI coverage to low-wage workers, and said that the proposed regulations indirectly restrict a State's discretion to define eligibility and thereby exceed Congressional intent. Moreover, in this commenter's view, by establishing such a high level of employer contribution, HCFA effectively is excluding dependents of small business employees from participating in SCHIP.

Another commenter stated that a required percentage of employer contribution for participation in SCHIP premium assistance programs would give employers a target that could be misused. If an employer arbitrarily reduced its percentage of contribution, the employer could eliminate the opportunity for additional SCHIP-eligible employees to purchase employer health insurance with the help of premium assistance. In the commenter's State, only 2.5 percent of eligible individuals with access to employer-sponsored health coverage have access to family coverage where the employer pays 60 percent or more of the premiums. For nearly 30 percent of the State's eligibles with access to family coverage via an employer, the employer contributes about 10 percent less than the 60 percent minimum. In this commenter's view, our proposed rule would eliminate the opportunity for these individuals to be covered under a premium assistance program.

One commenter expressed disappointment that HCFA did not deviate from the policy expressed in the February 13, 1998 letter and indicated that the guidance is overly prescriptive and biased against the development of State approaches to SCHIP using employer-sponsored coverage. The commenter suggested providing additional State flexibility in determining the amount of employer contribution as long as plans certify that issues related to crowd out and substitution are addressed. If, upon evaluation, State efforts do not result in permissibly low levels of substitution, the commenter stated they would be happy to assist in the development of more detailed and specific guidelines. If the 60 percent requirement is not eliminated, this commenter suggested that States should be allowed to develop an alternative State average based on size of business, number of employees, number of low-wage employees or some other relevant factor.

Another commenter stated that there is no evidence in its Health Insurance Premium Program (HIPP) that employers have reduced their contribution because HIPP is paying the premium, and the commenter would not expect employers to act differently with respect to SCHIP. The commenter indicated that employers have other employees to consider and there is no evidence to support the position that employers will reduce their contribution because some employees are subsidized. They stated their belief that the majority of employers recognize the value of providing health care coverage to their employees and want them insured.

In this commenter's view, HCFA's position penalizes employees of employers who are not financially able or willing to contribute more, especially when health plans impose large premium increases. Also, the commenter believed that HCFA's position penalizes States by limiting their ability to buy-in to cost effective employer coverage and increasing the administrative burden for States. The commenter recommended that, if the employer plan is cost effective, States should have the flexibility to take advantage of the coverage, regardless of the amount of employer contribution.

Response: We appreciate the concerns raised by these commenters and we have revised our policy in this final rule to provide additional flexibility for States wishing to utilize premium assistance programs. We will no longer require States to implement a minimum employer contribution of 60 percent. We agree with the commenters' position that the cost-effectiveness requirement of the statute reduces the need for a uniform minimum employer contribution level, because it is likely that a substantial employer contribution would be necessary in order to meet the test of cost-effectiveness. However, States must identify a specific minimum employer contribution level to ensurethat SCHIP funds are used to supplement the cost of employer-sponsored insurance rather than supplant the employers' share of the cost of coverage, and we have maintained the requirement that States evaluate substitution in the context of their premium assistance program in their annual reports. While allowing for significant new flexibility, this policy also encourages States to require the highest possible employer contribution level that is reasonable given the circumstances in their State. In addition, the rules maintain the requirement that the employee eligible for the coverage must utilize the full premium contribution available from the employer.

We recognize that it may be necessary to revisit this policy as States gain experience with the provision of SCHIP coverage and we receive further evaluations of substitution with respect to SCHIP coverage provided through premium assistance for employer-sponsored insurance. The requirements set forth in this final rule represent our position on the steps necessary to implement the statutory provisions of section 2102(b)(3)(c) of the Act in light of what is now known about the interaction between private and public coverage. The rules provide considerable flexibility, allowing States and HCFA room to adjust the approach to substituion based on experience with the program.

Comment: One commenter agreed with the proposed rule's flexibility to allow less than 60 percent employer contribution to family coverage if the State average is less than 60 percent.

Response: We appreciate the support and as stated above, we have dropped the 60 percent contribution requirement in part because we recognize the variation in levels of average employer contributions across States.

Comment: One commenter strongly disagreed with our proposal to allow States to set a lower standard for employer contributions than 60 percent. The commenter asserts that because of the lack of data on “average” employer contributions to dependent coverage, especially with regard to small employers, and the fact that the average contribution among employers with 50 or fewer employees is zero percent, and in the commenter's State large employers also often contribute nothing, the commenter believes our proposed policy of allowing a less than 60 percent contribution would permit the allowance of premium assistance programs even where the employer contributes nothing at all.

Response: A contribution level of less than 60 percent is permitted under these final rules, as long as the cost-effectiveness test is met. We do not agree that premium assistance programs likely would be allowed when there is no employer contribution, as the commenter suggested, because the cost-effectiveness test is unlikely to be met without a substantial employer contribution.

Comment: One commenter suggested that HCFA clarify whether (and how) the NPRM's preamble discussion of determining cost-effectiveness under family coverage waivers applies with respect to using employer-sponsored insurance to provide coverage under SCHIP.

Response: The cost-effectiveness requirement in § 457.810(c) applies when a State provides premium assistance programs for SCHIP eligible children. The cost-effectiveness test for premium assistance for group health insurance coverage requires a comparison of the cost of coverage of the child that would otherwise be available under SCHIP to the State's cost to provide premium assistance for group health insurance coverage for that child. We have modeled the discussion of the cost-effectiveness test in the regulation text after the provision related to States that wish to cover family members, in addition to targeted low-income children at § 457.1015. We have specified that the State's cost for coverage for children under premium assistance programs must not be greater than the cost of other SCHIP coverage for these children. Consistent with cost-effectiveness test for family coverage, the State may base its demonstration of cost-effectiveness on an assessment of the cost of coverage for children under premium assistance programs to the cost of other SCHIP coverage for these children, done on a case-by-case basis, or on the cost of premium assisted coverage in the aggregate.

See the discussion at § 457.1015 for further details on cost-effectiveness for family coverage waivers.

Comment: One commenter indicated that the 60 percent requirement would unrealistically require a large base of employers to report data on contribution levels to the State in order for the State to satisfy the contribution requirement. Other commenters suggested we require States to evaluate the percent of income families would have had to spend to maintain employment-based or individual coverage during the period they waited for SCHIP coverage in assessing their substitution prevention procedures for their March 2000 evaluations and annual reports. They recommended that State evaluations and annual reports assess whether individual employers are terminating coverage for low-wage workers while maintaining coverage of higher wage workers and executives. Such an assessment should also examine increases in the amounts that employers are asking low-wage workers to contribute toward employment-based insurance coverage. Another commenter noted that few States will have implemented the employer buy-in option by the time of the March 2000 evaluations for HCFA to establish policy based on those evaluations.

Response: We are no longer imposing a minimum employer contribution requirement and recognize that there is not much experience to-date with premium assistance programs. As HCFA and the States gain experience, we will be in a better position to evaluate the extent of substitution taking place. We recognize that there is limited data regarding employer coverage and contributions based on wage-levels of employees as well as State based information on the percent of income families would have had to spend to maintain private coverage while waiting for SCHIP coverage. In addition, we note that market forces other than SCHIP may influence the level of employer contribution and further complicate such analyses. We encourage States to assess these issues but recognize that data to support such assessments may be difficult to obtain and therefore do not require it.

Comment: Several commenters noted concern about HCFA's policy permitting States to provide direct SCHIP coverage to children during the six-month waiting period via the State's separate child health program (other than premium assistance programs). Commenters indicated that this policy itself would actually facilitate crowd out as families dropped their privately-funded coverage in favor of publicly-funded benefits and that the privately-funded coverage would not resume until six months of publicly-funded coverage passed. In addition, one commenter noted that coverage under the State's regular SCHIP program is less cost-effective than its coverage under a premium assistance program.

Response: To the extent that the part of State's separate child health program that does not involve premium assistance requires either no period of uninsurance or a shorter one, there would be nothing to prohibit a child from being enrolled in that portion of the program even if the family had recently dropped coverage under its group health plan. There is no reasonthat States should not be allowed to offer such coverage, although we believe it is unlikely that many families will drop their private group health insurance for coverage under a State's separate child health program, in part because most families would prefer to keep coverage of all the family members under one plan.

Comment: Many commenters suggested inclusion in the regulation of a mandatory list of exceptions to the proposed minimum 6-month waiting period and also encouraged the Department to prohibit waiting periods in excess of six months. Suggested exceptions included when: (1) An eligible individual is pregnant or disabled; (2) a waiting period exceeds the 63-day gap limit under HIPAA and would result in exclusion of coverage for a preexisting condition under the coverage offered by the State's separate child health program; (3) an eligible child is a newborn or recently adopted; (4) the waiting period would block coverage of a well-baby, well-child, or immunization service according to the periodicity schedules for such services; (5) insurance is lost because of involuntary job loss; (6) insurance is lost because of death of a parent; (7) insurance is lost because of a job change to employment where the new employer does not cover dependents; (8) a family moves out of the service area of employer coverage; (9) an employer terminates insurance coverage for all of its employees; (10) COBRA insurance benefits expire; (11) employment-based insurance ends because an employee becomes self-employed; (12) insurance is lost because of long-term disability; (13) insurance is terminated due to extreme economic hardship of the employer or employee; and (14) there is a substantial reduction in lifetime medical benefits or benefit category to an employee and dependents in an employee-sponsored plan. One of the commenters also suggested an exception when there has been a loss or termination of employer-based coverage due to affordability problems that would be determined based on a percentage of income. In addition, some commenters suggested exceptions when an eligible child has insurance that only provides limited coverage such as catastrophic coverage, hospital-only coverage, or scholastic coverage with very high deductibles, because these policies wouldn't allow access to preventive medical benefits.

Response: HCFA encourages States that impose waiting periods without group health coverage to consider adopting exceptions. Many States have adopted exceptions to the period of uninsurance based on a variety of factors. We have approved exceptions for reasons such as: loss of insurance due to involuntary job loss, death of a parent, change of employment where the new employer does not cover dependents; a family moved out of the service area of employer coverage; employer termination of insurance coverage for all employees; expiration of COBRA insurance benefits; end of employment-based insurance because an employee becomes self-employed; loss of insurance because of a long-term disability; termination of insurance due to economic hardship of the employer; when the family faces extreme economic hardship; and a substantial reduction in lifetime medical benefits to an employee and dependents in an employer-sponsored plan.

We have made several changes to the list of exceptions to the minimum period without coverage under a group health plan. States may allow for exceptions to the minimum period without coverage under a group health plan when the child's coverage is involuntarily terminated due to employer termination of coverage for all employees and dependents. We have added an exception for cases when there is a change in employment that does not offer dependent coverage.

In addition, States may provide an exception when the child's family faces economic hardship. While States have flexibility to define this term, examples of economic hardship could be families who are facing unusual economic difficulties, such as the loss of a home to fire, or high out-of-pocket costs due to a family member's illness not being covered by insurance. Another example would be if a State is targeting its premium assistance program to certain employers that provide only very limited health insurance coverage, a waiting period may not necessarily be required since the likelihood of substitution would be limited in those circumstances. Finally, we would consider an exception to the waiting period requirement if a State's proposal targeted low-wage employers in its premium assistance program, because substitution is much less likely when the coverage being subsidized is offered only by low-wage employers.

We anticipate that these reasonable exceptions will help facilitate States' ability to utilize premium assistance programs to enroll children in SCHIP.

Comment: One commenter noted that their State has had a Health Insurance Premium Payment (HIPP) program for Medicaid since July 1991. Under the HIPP program, the State pays the entire cost of the employee's share of the premium necessary to provide coverage to the Medicaid-eligible family members. Based on the State's experience with this program, they stated that they do not agree with our position that allowing States to assist families in the purchase of employer-related coverage will result in substitution of coverage. In fact, the commenter noted that as a condition of Medicaid eligibility, this State requires the family to maintain the insurance when it is cost-effective for the State to buy the coverage. This State argued that its policy supports the provision of premium assistance for employer coverage and avoids substitution because the State maintains the coverage for the family.

The commenter believed that HCFA's position actually promotes substitution of coverage by making it harder for States to buy-in to employer health plans when they become available and, thus, depriving the State of the opportunity to buy coverage that is more cost effective to the State.

The commenter was particularly concerned about our proposal because they have a strong HIPP program. It appears to the commenter that, if the State is purchasing employer coverage under the HIPP program for a Medicaid-eligible child, at the time the child transitions to their separate SCHIP program, the child has health insurance through an employer (although the State was paying for it), would result in the imposition of a 6-month waiting period before the child could be eligible for SCHIP and before the State could continue buying-in to the employer coverage. The commenter wanted the flexibility to maintain employer-sponsored coverage for children when they transition between Medicaid and the separate SCHIP program.

Response: We understand the commenter's concerns and acknowledge that substitution policies raise complex issues for which there are no clear answers. We have revised our policy in a number of ways to allow States greater flexibility to design premium assistance programs and we will continue to work with States as they evaluate how these programs are working and whether employer contributions are maintained. We note that in Medicaid, unlike SCHIP, having other health insurance coverage does not preclude eligibility for the program. With respect to the problem suggested by the commenter, we note that waiting periods do not apply when a child moves from a Medicaid program into a separate child health program because of an increase in family income, even if the Medicaid coverage was provided through anemployer-based plan such as the case with the HIPP program. In this case the child would be considered to have been covered by Medicaid, rather than by group health insurance coverage.

Comment: One commenter noted that if a family has to be uninsured for six months before the children can receive coverage through premium assistance for a group health plan, the family may miss the employer's open enrollment period while it waits to have access to premium assisted coverage.

Response: We note that the minimum waiting period requirement applies to the SCHIP-eligible child, not the entire family. Thus, for example, a parent could elect self-only coverage and decline dependent coverage, and enroll immediately in the employer-sponsored health insurance. Then, once the six-month waiting period had been satisfied, the parent could enroll the child(ren) at the next open enrollment period and obtain SCHIP premium assistance. States may cover SCHIP-eligible children in their regular SCHIP programs until such time as they can be enrolled in employer plans. Because § 457.810 gives effect to an important congressional purpose related to SCHIP coverage, we are maintaining the minimum waiting period in this circumstance. However, we suggest that States adopt rules, under the scope of their regulatory authority consistent with HIPAA, to require a special enrollment opportunity in group health plans based on a SCHIP-eligible individual or family becoming eligible to enroll in the plan under a premium assistance program.

Comment: One commenter suggested that the general provisions of proposed § 457.805, which say that “The State plan must include a description of reasonable procedures to ensure that coverage provided under the plan does not substitute for coverage under group health plans . . . ” are sufficient and that proposed section § 457.810 (“Premium assistance programs: Required protections against substitution.”) should be deleted in order to allow States the flexibility to develop innovative approaches to utilizing employer-sponsored insurance coverage for SCHIP enrollees. The commenter indicated its belief that this approach would be in accord with Congress' intent that SCHIP programs be State-designed and State-operated, and that it would allow for the fact that private insurance markets and employer-sponsored health insurance patterns vary significantly from State to State. Proposed § 457.810 would make it very difficult for the implementation of employer-sponsored insurance under SCHIP.

Response: We understand the commenters concerns and have added some significant flexibility in this section of the final rule, as discussed above. We will work closely with States to develop premium assistance programs that fit their needs in the simplest and most operationally efficient way possible, while complying with the provisions of this final rule.

Comment: One commenter suggested that the language in § 457.810(a)(1) is poorly drafted and appears to imply that children uninsured more than 12 months would not be provided SCHIP coverage.

Response: We agree and have revised the language in § 457.810(a)(1) to clarify that a State, may not require a waiting period that exceeds 12 months.

H. Subpart I—Program Integrity

We proposed in subpart I to specify the provisions necessary to ensure the implementation of program integrity measures and enrollee protections within the State Children's Health Insurance Program. In addition, this subpart discussed the President's Consumer Bill of Rights and Responsibilities as it relates to the SCHIP program. This subpart also described how the intent of the GPRA can be upheld by including program integrity performance and measures as part of the State plans.

The grievance and appeal, and privacy-related issues addressed under this Subpart of the proposed regulation are now being addressed in the new Subpart K, Applicant and Enrollee Protections.

1. Basis, Scope, and Applicability (§ 457.900)

In § 457.900, we proposed under the authority of sections 2101(a) and 2107(e) of the Act to set forth fundamental program integrity requirements and options for the States. Section 2101(a) of the Act specifies that the purpose of the State Children's Health Insurance Program is to provide funds to States to enable them to initiate and expand the provision of child health assistance to uninsured, low-income children in an effective and efficient manner. In addition, section 2107(e) of the Act lists specific sections of title XIX and title XI and provides that these sections apply to States under title XXI in the same manner they apply to a State under title XIX.

The program integrity provisions contained in this subpart only apply to separate child health programs. States that implement a Medicaid expansion program are subject to the Medicaid program integrity provisions set forth in the Medicaid regulations at part 455, Program Integrity: Medicaid.

Comment: One commenter suggested that HCFA meet with the Office of the Inspector General to discuss fraud and abuse issues related to outreach to look at the legality of encouraging certain outreach strategies. The commenter noted that payment from a particular provider to a person, who the provider knows or should know would be likely to influence the individual to receive services, is prohibited.

Response: We appreciate the concern of the commenter. We routinely coordinate with the OIG regarding the review of existing and proposed regulations in accordance with the Inspector General Act, section 4(a)(2).

Comment: One commenter recommended that the entire Subpart be revised to be consistent with the requirements in the Medicare program. The commenter urged HCFA to adopt detailed requirements for both fee-for-service and managed care claims and suggested extensive revisions to the proposed rules. The commenter felt the need for flexibility did not justify State-by-State variation with respect to the applicability or enforcement of the False Claims Act.

Response: We disagree with this comment. The Medicare program is nationally funded and administered, while Medicaid and SCHIP are jointly-funded Federal-State programs that are administered by the States within broad Federal guidelines. Therefore, it would be inappropriate and infeasible to require SCHIP and Medicaid programs to conform to fraud and abuse prevention standards of an entirely Federally funded and administered program. In addition, while we recognize the significance of the False Claims Act, standardized claims requirements are not necessary for the efficient and effective operation of the SCHIP program, or for enforcement of the False Claims Act.

Comment: One commenter felt that HCFA over-emphasized the issue of program integrity at this point in the implementation process. They suggest that the States' scarce resources and personnel would be better focused on outreach, eligibility and enrollment rather than program integrity and fraud. This commenter commended our emphasis on the need for continuity with other State programs. One commenter recommended deleting §§ 457.915, 457.920, 457.925, and 457.930 because the commenter felt that the proposed rule should not mandate State activities that are subject to theadministrative cap and that are not specifically required in the statute.

Response: While we appreciate the commenter's concern, we disagree with the commenter's argument that we over-emphasized program integrity too early in the implementation process. We agree that outreach, eligibility, and enrollment are all important aspects of SCHIP programs and deserve adequate resources for development and implementation. However, program integrity initiatives are also necessary now that States' programs have been established. Program integrity is essential to protecting the SCHIP program from abuse and to ensuring that the program serves those it was intended to serve, uninsured low-income children. Therefore, to protect public funds from inappropriate and unintended uses and to preserve the SCHIP program, States must have a strong fraud prevention and detection plan early in program development so that it will be in place as programs develop and mature, and serve as a viable deterrent to potential fraud and abuse.

Comment: One commenter requested clarification on the issue of limitations on provider taxes and donations as it applies to the provider contribution toward family cost-sharing requirements.

Response: The donation rules at section 1903(w) of the Act govern donations by providers or related entities directly to the State, or to extinguish a State liability. Premiums are a liability of the recipient. When donations are given to the recipient, or to the State on behalf of the recipient, the liability of the recipient is reduced, not the liability of the State. As a reasonable safeguard, the sponsor paying the premium on behalf of the enrollee should either give the donation directly to the family, make the donation to the State tied to specific eligible individuals, or make the donation to the State which will in turn, designate the specific eligible individual(s). In the latter case, the State must assure donations are assigned to enrollees in a manner that does not favor higher income children over lower income children. In any case, the donation should not exceed the premium amount specified in the approved title XXI State plan. The section of the State plan related to cost sharing should describe the procedure for accepting such donations.

In addition, we note that providers are prohibited from giving enrollees anything of value that is likely to induce an enrollee to select a particular provider under the provisions of section 1128A(a)(5). Such conduct may subject the provider to civil monetary penalties under that section. This civil money penalty provision is administered by the Office of the Inspector General (OIG). In general, States are advised to avoid donations from providers for enrollee premiums that could unduly influence enrollees to select a particular health plan or provider. A State that is concerned that donations for enrollee's premiums may violate these provisions may wish to seek an advisory opinion from the OIG. See 42 CFR part 1008. The OIG will also participate in review of State plans or amendments proposing such donations.

Comment: One commenter noted that the many requirements included in this Subpart tacitly assume that the State will have a direct, contractual relationship with all SCHIP participating health plans, including premium assistance plans. However, they stated that, for premium assistance programs for group health coverage, no such contractual mechanism will exist. The employer, not the State, is the entity that contracts with the health plan; and the State is simply providing premium assistance to enable families to enroll their children in premium assistance programs, according to this commenter. Because there is no mechanism for enforcement here, the commenter stated that they are assuming that the requirements in this Subpart would not apply to employer plans. They suggested that the preamble should clarify this point. They cautioned that any attempt to apply requirements of this sort to employer plans will mean that no employer plans will ever qualify for premium assistance.

Response: While we have considered the commenter's concerns, States are responsible for the oversight of the use of public funds to provide child health assistance through premium assistance programs just as they are responsible for oversight in other types of children's health insurance programs. Consequently, it is not appropriate to make an exception from program integrity regulations for employer plans. In the case where the State has no direct contractual relationship with the entity providing health coverage, the State should utilize the fraud protections provided through the State insurance agency responsible for oversight of all commercial plans. For example, if State funds are provided under SCHIP to State-regulated health plans, the State insurance department anti-fraud component could conduct the State's anti-fraud oversight for its SCHIP funds. This final regulation provides flexibility to States for States to develop program integrity methods and systems that fit the needs of their particular SCHIP programs, whether or not those programs consist of premium assistance for group health plans.

2. Definitions (§ 457.902)