[Federal Register Volume 75, Number 199 (Friday, October 15, 2010)]
[Notices]
[Pages 63480-63482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25977]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Medicaid Program: Implementation of Section 614 of the Children's
Health Insurance Program Reauthorization Act of 2009 for Adjustments to
the Federal Medical Assistance Percentage for Medicaid Federal Matching
Funds
AGENCY: Office of the Secretary, Department of Health and Human
Services.
ACTION: Final notice.
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SUMMARY: For purposes of Title XIX (Medicaid) of the Social Security
Act, the Federal Medical Assistance Percentage (FMAP), defined in
section 1905(b) of the Social Security Act, for each State beginning
with fiscal year 2006 is subject to adjustment pursuant to section 614
of the Children's Health Insurance Program Reauthorization Act of 2009
(CHIPRA), Public Law 111-3. Section 614 provides for a recalculation of
the FMAP disregarding identifiable significantly disproportionate
employer pension or insurance fund contributions for a State. These
contributions, when counted, increase State personal income and, by
operation of the statutory formula to calculate the FMAP, would
decrease the FMAP for the State. This final notice announces the
methodology that the U.S. Department of Health and Human Services will
use to determine the need for, and amount of, any such recalculation of
the FMAP for a State.
A. Background
Section 1905(b) of the Social Security Act defines the Federal
Medical Assistance Percentage (FMAP), which is used to determine the
share of Federal matching funds paid to each State for medical
assistance payments under an approved Medicaid State plan under Title
XIX of the Social Security Act. These FMAP rates are also used to
determine Federal matching fund rates for State expenditures for
assistance payments under certain social service programs under Title
IV of the Social Security Act and for child health assistance
expenditures under the Children's Health Insurance Program under title
XXI of the Social Security Act. In other Federal Register issuances, we
have addressed changes to these FMAP rates required under the American
Recovery and Reinvestment Act of 2009 (Pub. L. 111-5).
This notice addresses adjustments to the FMAP rates that are
applicable only to the Medicaid program and required by Section 614 of
the Children's Health Insurance Program Reauthorization Act of 2009
(CHIPRA). Section 614 specifies that certain significantly
disproportionate employer pension or insurance fund contributions shall
be disregarded when computing the per capita income used to calculate
the FMAP. The statutory formula for calculating the FMAP is based on
the ratio of the State's per capita income to the per capita income of
the entire United States. Under this formula, States with higher per
capita income levels could have lower FMAP rates than States with lower
per capita income levels. Significantly disproportionate employer
pension or insurance fund contributions increase State personal income
and, by operation of the statutory formula, could result in lower FMAPs
than if those contributions were disregarded. CHIPRA requires
adjustments to the Fiscal Year 2006 (FY06) through Fiscal Year 2010
(FY10) Medicaid FMAP rates and to any future FMAP calculation.
A notice with comment on the proposed implementation of Section 614
was published in the Federal Register on June 7, 2010. Only one person
sent in comments during the 30-day period.
B. Calculation of the FMAP Adjustment Under CHIPRA
Section 614 of CHIPRA requires that the Title XIX Medicaid FMAP
shall be adjusted for any States that had significantly
disproportionate employer pension and insurance fund contributions. A
significantly disproportionate employer contribution is defined as any
identifiable employer contribution towards pension or other employee
insurance funds that is estimated to accrue to residents of such
[[Page 63481]]
State for a calendar year if the increase exceeds 25 percent of the
total increase in State personal income. The personal income data set
originally used in calculating FMAP rates shall be used for making this
adjustment to the FMAP rates.
The required adjustment is a recalculation of the FMAP rate
disregarding any significantly disproportionate employer pension or
insurance fund contribution in computing the State per capita income,
but not disregarding such contributions in computing the United States
per capita income used in the FMAP calculation. Section 614(c) provides
that in no case shall a State have its FMAP reduced because of the
application of this disregard.
Section 614(b)(3) specifies a special adjustment for negative
growth in State personal income. In that instance, for the purposes of
calculating the FMAP for a calendar year, an employer pension and
insurance fund contribution shall be disregarded to the extent that it
exceeds 125 percent of the amount of employer contribution in the
previous calendar year. The methodology to implement this provision
will be addressed in a future Federal Register notice.
C. Analysis of and Responses to Comments
In response to the June 2010 proposed regulation, we received
correspondence from one commenter. The commenter posed several
questions and suggestions.
Application of FMAP Adjustment
Comment: The commenter asked if HHS anticipates the adjustment
applying to only one particular State or is there a reasonable
expectation that other States may qualify? In addition, the commenter
asked whether HHS will provide guidance to States in the form of
thresholds above which a State may determine that a review of employer
contributions is warranted for a potential FMAP adjustment.
Response: Except for Louisiana with a negative growth in personal
income in 2005, all other States had increases in State personal income
of between $359 million and $1.4 billion or more during the 2003-2008
time period. A contribution attributed to a particular State's personal
income of at least 25 percent of these amounts would be necessary to
trigger an FMAP adjustment. At this time, HHS knows of only one
disproportionate employer contribution, attributed to Michigan in 2003.
HHS does not think it is likely that another employer contribution in
2003-2008 would be considered disproportionate, but does not rule out
the possibility. It is possible, however, that additional States may
qualify at any point in the future. HHS does not intend to issue
guidance with each FMAP notice on a State's potential threshold where a
review of its employer contributions may be warranted. States can
determine for themselves using Department of Commerce Bureau of
Economic Analysis (BEA) data, whether an employer's contribution would
meet the threshold for triggering an FMAP adjustment.
Definition of Employer Pension and Insurance Fund Contribution
Comment: The commenter asked whether the definition of ``employer
pension and insurance fund contribution'' is the same as the BEA
definition.
Response: HHS intends to use the BEA definition: contributions
consisting of employer payments (including payments-in-kind) to private
pension and profit-sharing plans, publicly administered government
employee retirement plans, private group health and life insurance
plans, privately administered workers' compensation plans, and
supplemental unemployment benefit plans, formerly called ``other labor
income''.
Accounting for Employer's Contributions
Comment: The commenter asked if it is the intent of the methodology
to identify single employers with disproportionate pension and
insurance fund contributions. The commenter also asked whether
contributions from any employer (public, private for-profit, private
non-profit, self-employed, S Corporations, C corporations, LLCs, etc)
are eligible.
Response: The legislation states that a significantly
disproportionate employer pension and insurance fund contribution is
any identifiable employer contribution meeting the threshold. HHS reads
this language to refer to the contribution of a single employer. The
legislation does not exclude any employer.
Adjustment for Negative Growth in State Income
Comment: The commenter asked whether the cumulative amount of
contributions in excess of 125 percent from all such qualifying
employers would be disregarded for the special adjustment for negative
growth in State personal income.
Response: This comment concerns the special adjustment for negative
growth in State personal income, which is not covered in this notice.
HHS intends to issue another notice on the special adjustment for
negative growth in State personal income.
Acceptable Evidence Submission
Comment: The commenter suggested that it would be beneficial for
HHS to describe in more detail what evidence of disproportionate
employer pension and insurance fund contribution is acceptable and
asked what methodology will be used to determine the amounts of
employer contributions estimated to accrue to residents of a State.
Response: In order to give States as much flexibility as possible
in the type of information that can be submitted to request an
adjustment, HHS does not want to prescribe the specific type or format
of their submission, but the information should be documented in such a
way to permit effective review and verification. HHS will be using the
same methodology employed by BEA which is based on a distribution of
industry wages to allocate employer contributions to States.
Time Period for Adjustment and Data Submission
Comment: The commenter asked whether it is correct that there is no
end date to this provision. The commenter believed that the time frame
for submitting data for employer contributions made between 2003 and
2008 by the end of FY 2010 is unreasonable and that States should be
given up to 4 years to supply information for future years. The
commenter also asked how long the verification process will take in
considering a request to adjust a State's FMAP and indicates that
States would appreciate a response within their fiscal year.
Response: The commenter correctly noted that the legislation does
not indicate an end date to this provision. HHS finds the commenter's
suggestion for a longer time frame for submitting initial data for the
years 2003 through 2008 reasonable. HHS therefore extends the time
frame for submitting data for employer contributions made between 2003
and 2008 to the end of FY 2011. Similarly, HHS agrees to extend the
time frame for submitting data from 2009 and beyond such that the
deadline for submission of data from 2009 and beyond will be the end of
the second fiscal year following the year end of the employer's annual
financial statement that includes the disproportionate employer
contribution.
Because it is not known what information a State may submit as
[[Page 63482]]
justification for an FMAP adjustment, we cannot predetermine how much
time will be required to verify the information, but will review and
verify a State's submission and request for an adjustment to its FMAP
as expeditiously as possible.
D. Methodology Utilized in the Calculation of the Adjustment to the
Medicaid FMAP
This Final Notice announces the methodology that the U.S.
Department of Health and Human Services (HHS) will use in implementing
the employer contribution disregard required by Section 614 of CHIPRA.
The approach reflects the absence of a Federal source of reliable and
timely data on pension and insurance contributions by individual
employer and State.
We will use the BEA definition of pension and insurance
contributions: contributions consisting of employer payments (including
payments-in-kind) to private pension and profit-sharing plans, publicly
administered government employee retirement plans, private group health
and life insurance plans, privately administered workers' compensation
plans, and supplemental unemployment benefit plans, formerly called
``other labor income''.
We will identify significantly disproportionate employer pension or
insurance contributions for a State by reviewing contributions
identified by the State. We believe that States may have greater access
to timely and relevant data on such contributions than is available
from Federal data sources. We would request that any State that
believes an individual employer has made a significantly
disproportionate employer or insurance contribution provide data on
that individual employer contribution to HHS. The State may submit
official audited financial statements for the employer for the year of
the contribution (starting with the year 2003) and the prior year. If
the State does not submit official audited financial statements for the
employer, the State may submit other evidence that the increase in the
employer's contribution is likely to exceed 25 percent of the increase
in the State's personal income in that year.
After a State submits written notification that such a contribution
occurred, HHS will verify the State's data. As part of this
verification process, HHS will search the Security Exchange Commission
(SEC) filings or the Internal Revenue Service (IRS) 5500 Annual Return/
Report of Employee Benefit Plan database to find the employer's
contributions for the relevant two-year period. If HHS is unable to
verify the State's submitted data, no FMAP adjustment will be made.
After the State's data for an employer is verified, HHS will
allocate employer contributions in both years to the State according to
the methodology used by the BEA. Under that methodology, employer
contributions to pension and insurance funds are distributed according
to State wages and salaries by the employer's industry subsector. Then,
HHS will determine whether the State increase in the employer
contribution exceeds the trigger of 25 percent of the increase in total
State personal income.
If the employer contribution is significantly disproportionate, HHS
will disregard the State-allocated contribution, i.e., subtract it from
the State's personal income in that year. HHS will calculate the FMAP
adjustment for the State using the revised State per capita income
based on the newly calculated State personal income. Since the FMAP
calculation involves the average per capita income for three years, the
FMAP adjustment will be calculated for each fiscal year affected by the
State's revised per capita income. For instance, a significantly
disproportionate employer contribution in 2003 would affect the FMAPs
for FY06 (based on State per capita income for calendar years 2001,
2002, and 2003), FY07 (based on State per capita income for calendar
years 2002, 2003, and 2004), and FY08 (based on State per capita income
for calendar years 2003, 2004, and 2005).
States may submit data on disproportionate employer contributions
made between 2003 and 2008 to HHS by the end of FY 2011. The deadline
for 2009 and beyond will be the end of the second fiscal year following
the year end of the employer's annual financial statement that includes
the disproportionate employer contribution.
To summarize this methodology, after receipt of a State submission,
HHS will verify the employer contributions from SEC filings or IRS 5500
reports for the year of the contribution and the prior year. If the
employer contributions are verified, HHS will allocate the employer
contributions for the State for both years and determine whether the
State increase in the employer contribution exceeds the trigger of 25
percent of the increase in the State's personal income. If the employer
contribution meets the definition of significantly disproportionate by
exceeding the trigger, HHS will recalculate the FMAP rates for the
corresponding fiscal years. The Centers for Medicare & Medicaid
Services (CMS) will then calculate the changes in Federal medical
assistance payments resulting from the adjusted FMAP rates for the
State's applicable fiscal years. If HHS is unable to verify the State's
submitted data, then no FMAP adjustment will be made.
DATES: Effective Dates: This final notice is effective 30 days after
publication and sets forth a methodology for adjusted percentages
applicable under title XIX of the Social Security Act for fiscal years
2006 and beyond, beginning October 1, 2005.
FOR FURTHER INFORMATION CONTACT: Rose Chu or Thomas Musco, Office of
Health Policy, Office of the Assistant Secretary for Planning and
Evaluation, Room 447D--Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, (202) 690-6870.
Dated: September 10, 2010 .
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-25977 Filed 10-14-10; 8:45 am]
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