State Children's Health Insurance Program (SCHIP); Redistribution of Unexpended SCHIP Funds From the Appropriation for Fiscal Year 2003; Additional Allotments To Eliminate SCHIP Fiscal Year 2006 Funding Shortfalls; and Provisions for Continued Authority for Qualifying States To Use a Portion of Certain SCHIP Funds for Medicaid Expenditures, 20697-20707 [06-3833]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 71, Number 77 (Friday, April 21, 2006)]
[Notices]
[Pages 20697-20707]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3833]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-2235-NC]
RIN 0938-AO38


State Children's Health Insurance Program (SCHIP); Redistribution 
of Unexpended SCHIP Funds From the Appropriation for Fiscal Year 2003; 
Additional Allotments To Eliminate SCHIP Fiscal Year 2006 Funding 
Shortfalls; and Provisions for Continued Authority for Qualifying 
States To Use a Portion of Certain SCHIP Funds for Medicaid 
Expenditures

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Notice with comment period.

-----------------------------------------------------------------------

SUMMARY: This notice with comment period describes the procedure for 
redistribution of States' unexpended Federal fiscal year (FY) 2003 
SCHIP allotments remaining at the end of FY 2005 to those States that 
fully expended such allotments. This notice also announces the 
application of the provisions of the Deficit Reduction Act of 2005 
(DRA, Pub. L. 109-171, enacted on February 8, 2006) concerning the 
availability of additional allotments

[[Page 20698]]

appropriated to eliminate States' funding shortfalls under the SCHIP in 
FY 2006. The redistributed FY 2003 allotments and the additional 
allotments to eliminate shortfalls in FY 2006 will be available through 
the end of FY 2006 (September 30, 2006).
    This notice also describes the DRA amendments to the SCHIP statute 
relating to the provisions for ``qualifying States'' to elect to 
receive a portion of their available SCHIP allotments as increased 
Federal matching funds for certain expenditures in their Medicaid 
programs.

DATES: Comment Date: To be assured consideration, comment must be 
received at one of the addresses provided below, no later than 5 p.m. 
on May 22, 2006. Effective Date: April 21, 2006.

ADDRESSES: In commenting, please refer to file code CMS-2235-NC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (fax) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address only: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-2235-NC, P.O. Box 8010, Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-2235-NC, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7195 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.

SUPPLEMENTARY INFORMATION: 
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this notice with comment period to assist us in 
fully considering issues and developing policies. You can assist us by 
referencing the file code CMS-2235-NC and the specific ``issue 
identifier'' that precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

FOR FURTHER INFORMATION CONTACT: Richard Strauss, (410) 786-2019.

I. Background

[If you choose to comment on issues in this section, please include the 
caption ``Background'' at the beginning of your comments.]

A. Availability and Redistribution of SCHIP Fiscal Year Allotments

    Title XXI of the Social Security Act (the Act) sets forth the State 
Children's Health Insurance Program (SCHIP) to enable States, the 
District of Columbia, and specified Commonwealths and Territories to 
initiate and expand health insurance coverage to uninsured, low-income 
children. In this notice, unless otherwise indicated, the terms 
``State'' and ``States'' refer to any or all of the 50 States, the 
District of Columbia, and the Commonwealths and Territories. States may 
implement the SCHIP through a separate child health program under title 
XXI of the Act, an expanded program under title XIX of the Act, or a 
combination of both.
    Under section 2104(e) of the Act, the SCHIP allotments for a 
Federal fiscal year are available to match expenditures under an 
approved State child health plan for an initial 3-fiscal year ``period 
of availability,'' including the fiscal year for which the allotment 
was provided. After the initial period of availability, the amount of 
unspent allotments is reallotted and continues to be available during a 
subsequent period of availability, specified in the SCHIP statute. The 
statute directs the Secretary to redistribute allotments unexpended at 
the end of the initial 3-year period of availability from States that 
did not fully spend the allotments to States that fully spent the 
allotments for the fiscal year (with an exception for FY 1998 through 
2001 allotments that is not relevant to allotments discussed in this 
notice).

B. Availability and Redistribution of SCHIP Fiscal Year 2003 Allotments

    Section 2104(e) of the Act provides that amounts allotted to a 
State shall remain available for expenditure by the State through the 
end of the second succeeding fiscal year, except that amounts 
reallotted to the State are available for expenditure by the State 
through the end of the fiscal year in which they are reallotted. 
Section 2104(f) of the Act requires the Secretary to ``determine an 
appropriate procedure for redistribution of allotments'' from States 
that have not expended their allotments for the fiscal year to States 
that have fully expended their allotments.
    Under sections 2104(e) and (f) of the Act, the Secretary is 
required to establish a procedure that provides for the treatment of 
States' unused SCHIP allotments. Accordingly, for purposes of this 
notice, in applying section 2104(f) of the Act, following the initial 
3-year period of availability referenced in

[[Page 20699]]

section 2104(e) of the Act, the Secretary must determine an 
``appropriate procedure for redistribution'' of the amounts of States' 
FY 2003 SCHIP allotments from States that did not expend the allotments 
during the 3-year period of availability for that fiscal year (that is, 
FY 2003 through FY 2005) only to States that fully expended their FY 
2003 allotments during the 3-year period of availability.
    A final notice, published in the Federal Register on September 29, 
2005 (70 FR 56901), described the procedure for redistribution of 
States' unexpended FY 2002 SCHIP allotments, as authorized and required 
under section 2104(f) of the Act. In determining the procedure for 
reallocating the unused FY 2002 allotments, our primary consideration 
was to address, to the greatest extent possible, any projected State 
shortfalls for each of the redistribution States that would occur in FY 
2005, the fiscal year in which the FY 2002 redistribution occurred. We 
determined these State shortfalls in FY 2005 by considering for each 
redistribution State: (1) The projected SCHIP-related expenditures in 
FY 2005, as reflected in the State's August 15, 2005 quarterly budget 
submission (Forms CMS-37 and/or CMS-21B); and (2) the total SCHIP 
allotments available in FY 2005 for the State, exclusive of any FY 2002 
redistribution. For a redistribution State whose FY 2005 projected 
SCHIP-related expenditures were greater than its total SCHIP allotments 
available in FY 2005, the difference between the amounts under (1) and 
(2) for a State represents that State's ``shortfall'' for FY 2005.
    In the procedure for redistributing the unexpended FY 2002 
allotments described in the September 29, 2005 Federal Register notice, 
only after accounting for the FY 2005 shortfall amounts of the 
redistribution States did we further redistribute any remaining 
unexpended FY 2002 allotments to the redistribution States. For 
purposes of consistency with previous fiscal year redistribution 
methodologies, we based the redistribution of the remaining unexpended 
FY 2002 allotments (that is, only after first accounting for the total 
shortfalls for each redistribution State) on the same redistribution 
methodology as set forth in the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA), Pub. L. 106-554, enacted 
on December 21, 2000, amending section 2104(g)(1) of the Act. 
Specifically, we allocated the remaining amounts of the unexpended FY 
2002 allotments based on the difference between each of the 
redistribution States' total SCHIP-related expenditures for the 3-year 
period of availability related to FY 2002 (that is, FY 2002 through FY 
2004) and the State's FY 2002 allotment. The allocation basis is the 
percentage determined by dividing this difference for each 
redistribution State (including those redistribution States with a FY 
2005 shortfall) by the total of those differences for all 
redistribution States.

C. Additional Allotments To Eliminate FY 2006 Funding Shortfalls

    Section 6101(a) of the DRA added a new section 2104(d) of the Act 
to provide for additional allotments to eliminate State SCHIP funding 
shortfalls in FY 2006. The procedure for redistribution of the 
unexpended FY 2003 allotments remaining at the end of the 3-year period 
of availability for that fiscal year (that is, FY 2003 through FY 
2005), described in this notice below, incorporates a distribution 
procedure for the additional allotments authorized by new section 
2104(d) of the Act.

D. Expenditures, Authority for Qualifying States To Use Available SCHIP 
Allotments for Medicaid Expenditures, and Ordering of Allotments 
Elections

    Under section 2105(a)(1)(A) through (D) and (a)(2) of the Act and 
before enactment of Pub. L. 108-74 (Extension of Availability of SHIP 
Allotment Act, enacted on August 15, 2003), only Federal payments for 
the following Medicaid and SCHIP expenditures were applied against 
States' available SCHIP allotments: (1) Medical assistance provided 
under title XIX (Medicaid) to targeted low-income children in a SCHIP-
related Medicaid expansion, for which the enhanced SCHIP FMAP rate is 
available; (2) medical assistance provided on behalf of a child during 
a period of presumptive eligibility under section 1920A of the Act 
(these funds are matched at the regular Medicaid FMAP rate); (3) child 
health assistance to targeted low income children that meets minimum 
benefit requirements under SCHIP; and (4) expenditures in the SCHIP 
that are subject to the 10-percent limit on non-primary expenditures 
(including other child health assistance for targeted low-income 
children, health services initiatives, outreach, and administrative 
costs).
    Section 1(b) of Pub. L. 108-74, as amended by Pub. L. 108-127 
(Social Security Act, Technical corrections, enacted November 17, 
2003), added new section 2105(g) to the Act under which certain 
``qualifying States'' that met prescribed criteria may elect to use up 
to 20 percent of any of the States' available SCHIP allotments for FY 
1998, 1999, 2000, or 2001 to increase the FMAP rate for regular 
Medicaid expenditures to the enhanced FMAP rate available under SCHIP. 
As described in the Federal Register published on July 23, 2004 (69 FR 
44013), if a qualified State submits both 20 percent allowance 
expenditures and other ``regular'' SCHIP expenditures at the same time 
in a quarter, the 20 percent allowance expenditures will be applied 
first against the available fiscal year reallotments. However, the 20 
percent allowance expenditures may be applied only against the 
specified fiscal year allotment funds (upon which the 20 percent 
allowances were based) and which remain available. Under section 
2104(g)(1)(B)(iii) of the Act, the amounts of States' FY 2001 
reallotments are only available through the end of FY 2005; therefore, 
the FY 2001 20 percent allowances for the qualifying States are only 
available through the end of FY 2005.
    Section 6103 of the DRA provides for continued authority for 
qualifying States to use a portion of their available FY 2004 and FY 
2005 SCHIP allotments to increase the FMAP rate for expenditures made 
under the Medicaid program on or after October 1, 2005.

II. Provisions of This Notice

[If you choose to comment on issues in this section, please include the 
caption ``Provisions of This Notice'' at the beginning of your 
comments.]
    The purpose of this notice with comment period is to set forth our 
procedure for redistributing FY 2003 unexpended allotments. In this 
regard, this notice applies solely to the redistribution of FY 2003 
unexpended allotments and does not describe the procedure for the 
redistribution of any other unexpended fiscal year allotments. We 
anticipate publishing notices on redistribution procedures for 
subsequent fiscal years, unless Congress otherwise amends the Act to 
set forth procedures for redistributing such unexpended fiscal year 
allotments. This notice also describes our distribution of additional 
allotments in FY 2006 to eliminate State SCHIP funding shortfalls in FY 
2006, and to implement the continued authority for ``qualifying 
States'' to elect to receive a portion of certain of their available FY 
2004 and FY 2005 SCHIP allotments as increased Federal matching funds 
for certain expenditures in their Medicaid programs.

[[Page 20700]]

A. Redistribution of the FY 2003 SCHIP Allotments and Additional 
Allotments To Eliminate FY 2006 Funding Shortfalls

1. Current Law and Amendments
    Under section 2104(f) of the Act, the Secretary must determine an 
appropriate procedure to redistribute the entire amount of States' 
unexpended SCHIP allotments following the end of the related initial 3-
year period of availability only to those States that fully expended 
the allotments by the end of the initial 3-year period of availability 
(referred to in this notice as the redistribution States). Furthermore, 
section 2104(d) of the Act, as added by section 6101(a) of the DRA, 
provides for additional allotments to FY 2006 ``shortfall States.'' As 
described below, the appropriate procedure for redistribution of 
States' unexpended FY 2003 allotments remaining at the end of FY 2005 
incorporates the new provisions at section 2104(d) of the Act relating 
to the elimination of shortfalls in the SCHIP in FY 2006.
    Under section 2104(d)(2) of the Act, a shortfall State is a State 
with an approved child health plan under title XXI of the Act, for 
which the Secretary estimates based on the most recent data available 
to the Secretary as of December 16, 2005 that its projected FY 2006 
expenditures under such plan will exceed the sum of:
    i. The amount of the State's allotments for each of FYs 2004 and 
2005 that were not expended by the end of FY 2005;
    ii. The amount, if any, that is redistributed to the State during 
fiscal year 2006; and
    iii. The amount of the State's allotment for FY 2006.
    We determined the amount of each State's unexpended FY 2004 and FY 
2005 allotments that were not expended by the end of FY 2005 based on 
States' quarterly expenditure reports (Forms CMS-21 and CMS-64) as 
submitted and certified by States through November 30, 2005. The 
amounts of the States' allotments for FY 2006 are as published in the 
Federal Register on June 24, 2005 (70 FR 36615).
    In determining the appropriate procedure for reallocating the 
unexpended FY 2003 allotments remaining at the end of FY 2005, we 
incorporated the above definition of shortfall State under section 
2104(d)(2) of the Act, except that we did not include the amount of any 
FY 2003 redistribution (number ii. above). That is, before we could 
determine the amounts of any unexpended FY 2003 allotments to be 
redistributed to States in FY 2006 under number ii. above (and which 
would be redistributed in association with the additional amounts to be 
allotted to States to eliminate any shortfall in FY 2006), we first 
determined whether the amounts of States' available allotments under i. 
and iii. above were sufficient to meet the States' projected 
expenditures for FY 2006. A shortfall would be considered to exist for 
a State whose available allotments would be insufficient to meet its 
projected expenditures. We refer to the shortfall in FY 2006 determined 
without including the FY 2003 redistribution as the ``initial FY 2006 
shortfall.'' In particular, the ``initial FY 2006 shortfall'' for a 
State is equal to the difference (greater than zero) of a State's 
projected FY 2006 SCHIP expenditures and the total allotments available 
to the State in FY 2006 (determined as the sum of i. and iii. above).
    The following describes the FY 2003 redistribution procedure 
established under section 2104(f) of the Act and which incorporates the 
FY 2006 shortfall provisions referenced under section 2104(d)(2) of the 
Act.
    a. FY 2003 Redistribution Amounts and Additional Allotment Amounts 
for the Commonwealths and Territories.
    Section 2104(g)(1)(A)(ii) of the Act specifies the methodology for 
determining the FY 1998 through FY 2001 redistributed allotments for 
the Commonwealths and Territories that fully expended their SCHIP 
allotments related to those fiscal years. We applied the same 
methodology for purposes of determining an appropriate procedure under 
section 2104(f) of the Act to redistribute the unexpended FY 2003 
allotments remaining at the end of FY 2005; we had also applied this 
methodology in redistributing the unexpended FY 2002 allotments 
remaining at the end of FY 2004. Under this procedure, the total FY 
2003 allotment amount available for redistribution to the Commonwealths 
and Territories is determined by multiplying the total amount of the 
unexpended FY 2003 allotments available for redistribution nationally 
by 1.05 percent. For the FY 2003 redistribution calculation, this 
amount is $1,820,404 (1.05 percent of $173,371,863, the total 
unexpended FY 2003 allotments remaining at the end of FY 2005). Only 
those Commonwealths and Territories that have fully expended their FY 
2003 allotments will receive an allocation of this amount, equal to a 
specified percentage of the $1,820,404; with respect to the FY 2003 
allotments, all five Commonwealths and Territories fully expended those 
allotments by the end of FY 2005. The specified percentage is the 
amount determined by dividing the respective SCHIP FY 2003 allotment 
for each Commonwealth or Territory that fully expended its FY 2003 
allotment by the total of such allotments for such Commonwealths and 
Territories.
    Furthermore, section 2104(d)(3)(B) of the Act, as added by the DRA, 
requires that 1.05 percent of the total $283,000,000 be provided to the 
Commonwealths and Territories as additional allotments; this amount 
must be allocated among the jurisdictions in the same proportions as 
those specified in section 2104(c) of the Act. Therefore, a total of 
$2,971,000 (1.05 percent of $283,000,000) is available to be allocated 
as additional allotments for the Commonwealths and Territories in FY 
2006.
    b. Calculation of Additional Allotments and FY 2003 Redistributed 
Allotments for Shortfall States. Based on States' quarterly expenditure 
reports as reported and certified through November 30, 2005 (Forms CMS-
21 and CMS-64), we determined the amounts of States' unexpended FY 2004 
and FY 2005 allotments remaining at the end of FY 2005; these amounts 
combined with States' FY 2006 SCHIP allotments are available in FY 
2006. We then determined those States with FY 2006 initial shortfalls 
by comparing each States' projected FY 2006 expenditures with the total 
of its FY 2004, FY 2005, and FY 2006 allotments available in FY 2006. 
States for which such available allotments in FY 2006 would be 
insufficient to meet their projected FY 2006 expenditures are 
considered to have a shortfall equal to the difference of the projected 
expenditures and such total available allotments.
    We then determined the total additional amounts available for 
allotment to eliminate the States' initial shortfalls. Under section 
2104(d)(1) of the Act, a total of $283,000,000 is appropriated to 
provide for additional allotments to address States' shortfalls in FY 
2006. However, as indicated above, under section 2104(d)(3)(B) of the 
Act, $2,971,500 of the $283,000,000 must be allotted to the 
Commonwealths and Territories. Therefore, a total of $280,028,500 
($283,000,000 minus $2,971,500) is available for additional allotments 
in FY 2006 to shortfall States.
    In determining the amounts of additional allotment to eliminate the 
shortfalls for the shortfall States, we also needed to comply with 
section 2104(d)(4) of the Act, as added by the DRA, which provides that 
the additional allotments are only available for amounts expended under 
a SCHIP State

[[Page 20701]]

plan for child health assistance for targeted low-income children. In 
that regard, we established the amounts of the shortfall States' 
projected FY 2006 expenditures representing child health assistance for 
targeted low-income children. Next, we allocated the $280,028,500 among 
each of the shortfall States such that the additional allotment for 
each shortfall State did not exceed its initial shortfall amount or the 
amount of its targeted low-income children expenditures. We then 
subtracted the additional allotments from the initial shortfall to 
determine the amount of the remaining shortfall for each shortfall 
State.
    Finally, we determined the total amount of the unexpended FY 2003 
allotments to be redistributed to those shortfall States that had fully 
expended their FY 2003 allotments by the end of FY 2005 and the amount 
of that total, if any, to be redistributed to each of the shortfall 
States. The total amount of the unexpended FY 2003 allotments available 
to be redistributed to the States is $171,551,449, calculated as 
$173,371,853 (the total unexpended FY 2003 allotments at the end of FY 
2005) minus $1,820,404 (the amount of these funds redistributed to the 
Commonwealths and Territories). Since the total remaining shortfalls at 
that point were $174,298,185, we determined the remaining shortfall 
amount (if any) for each shortfall State as a percentage of the total 
remaining shortfalls. We then multiplied the total amount available for 
redistribution to the States ($171,551,449) by the remaining shortfall 
percentages to determine the amount of the redistribution to each of 
the shortfall States.
    As indicated above, we would base both the amounts of the 
additional allotments and the FY 2003 redistribution on the November 
2005 submissions of the estimates of States' FY 2006 expenditures, 
which we used to calculate the initial shortfall amount for each State. 
For the FY 2003 redistribution amounts only, however, we are reviewing 
further whether to use more current estimates to determine the 
remaining shortfall as of the date of the final notice in our 
calculations. We invite comments on this issue.
2. Ordering of Expenditures
    In applying State's expenditures against their available SCHIP 
allotments, we follow the order of expenditures as provided under 
section 2105(a)(1)(A) through (D) and (a)(2) of the Act as follows:
    (i) Title XIX SCHIP-related expenditures for which payment is made 
at the enhanced Federal medical assistance percentage (FMAP) (section 
2105(a)(1)(A) of the Act);
    (ii) Title XIX expenditures for medical assistance provided during 
a presumptive eligibility period under section 1920A of the Act 
(section 2105(a)(1)(B) of the Act);
    (iii) Child health assistance for targeted low-income children in 
the form of providing health benefits coverage that meets the 
requirements of section 2103 (section 2105(a)(1)(C) of the Act);
    (iv) Expenditures listed in section 2105(a)(1)(D)(i) through (iv) 
of the Act, respectively: Other child health assistance for targeted 
low-income children; health services initiatives under the plan for 
improving the health of children (including targeted low-income 
children and other low-income children); expenditures for outreach 
activities; and administration expenditures.
    As discussed previously, Pub. L. 108-74, as amended by Pub. L. 108-
127, also added new section 2105(g) to the Act, under which a 
``qualifying State'' meeting specified criteria could, at its option, 
elect to use up to 20 percent of any of the State's available SCHIP 
allotments for FY 1998, 1999, 2000, or 2001 for payments under the 
State's Medicaid program, instead of expenditures under the State's 
SCHIP. Furthermore, as amended by section 6103 of the DRA, qualifying 
States may elect to use up to 20 percent of their available FY 2004 and 
FY 2005 allotments for such purpose. As described in the Federal 
Register published on July 23, 2004 (69 FR 44013), if a qualified State 
submits both 20 percent allowance expenditures and other ``regular'' 
SCHIP expenditures at the same time in a quarter (based on the 
allotment priority order they both must apply against any available 
fiscal year allotments), the 20 percent allowance expenditures will be 
applied first against any remaining 20 percent allowance allotments 
amounts. We will apply the same approach with respect to the FY 2004 
and FY 2005 20 percent allowances determined in accordance with section 
6103 of the DRA.
    In general, in accordance with the ordering of allotments and 
expenditures provisions, the expenditures of States eligible for the FY 
2003 redistribution will be applied against the FY 2003 redistribution 
amounts.
3. Ordering Election for FY 2003 Redistributed Amounts and Additional 
Allotments To Eliminate the FY 2006 Shortfall
    We believe that the States eligible for the FY 2003 redistribution 
and additional allotments to eliminate the FY 2006 shortfall should be 
afforded the flexibility to decide whether the FY 2003 redistributed 
funds and additional allotments to eliminate the FY 2006 shortfalls 
would be used before or after other available allotment funds to allow 
them to optimize the use of such funds. Therefore, we offered States 
that will receive FY 2003 redistributed amounts and the additional 
allotment amounts the option of choosing the order of when the funds 
would be expended during FY 2006 among the other available allotments 
during FY 2006. In the previous redistributions for the unexpended FY 
1998 through FY 2002 allotments, the redistribution States had the same 
ordering of allotment choice for the redistributed allotment.
    An FY 2003 redistribution State (a State that has fully expended 
its FY 2003 allotment by the end of FY 2005) may have a maximum of four 
possible choices for the order of the application of FY 2003 
redistributed allotments and the additional allotments in FY 2005, 
depending on the other fiscal year allotments that are available to the 
States in FY 2006:
    (i) Before FY 2004 unexpended allotments;
    (ii) After FY 2004 allotments and before FY 2005 allotments;
    (iii) After FY 2005 and before FY 2006 allotments;
    (iv) After FY 2006 allotments.
    As specified in section 2104(e) of the Act, the FY 2003 reallotted 
amounts for a fiscal year will be available for allowable SCHIP 
expenditures reported by the redistribution States through the end of 
the fiscal year in which such amounts are reallotted. Therefore, 
amounts of the States' FY 2003 reallotments will be available through 
September 30, 2006 (the end of FY 2006). Under section 2104(d)(5) of 
the Act, as added by the DRA, the additional allotments to eliminate 
the FY 2006 shortfall are only available for expenditure by the State 
through September 30, 2006 and shall not be subject to any further 
redistribution.
    As part of the redistribution process, prior to making the FY 2003 
redistribution funds actually available, we contacted all of the States 
eligible for the FY 2003 redistribution in order to explain the 
provisions of this notice and to obtain their ordering elections for 
the FY 2003 redistributed allotment

[[Page 20702]]

amounts and the additional allotment amounts. In this regard, those 
Shortfall/redistribution States that will receive an additional 
allotment/FY 2003 redistributed allotment must provide their decision 
to us regarding their elections for the ordering of the additional 
allotments and the FY 2003 redistributed allotment amounts. This is 
essentially the same process we have used in prior years for obtaining 
prior fiscal year redistribution States' ordering elections.
    Consistent with past fiscal year redistribution processes, under 
the FY 2003 redistribution methodology, once a State chooses the order 
of the FY 2003 redistribution amounts and the additional allotment 
amounts to eliminate any FY 2006 shortfall, it cannot change that order 
at a later date. We then incorporated the amounts of States' FY 2003 
redistributed amounts and additional allotment and such States' 
ordering elections with respect to such amounts on Form CMS-21C 
(Allocation of Title XIX and Title XXI Expenditures to the SCHIP Fiscal 
Year Allotment). Form CMS-21C is used for tracking States' expenditures 
against their available SCHIP allotments. The FY 2003 redistributed 
allotment amounts and the additional allotment amounts will be 
automatically entered on this form, and the Medicaid and SCHIP 
expenditure system will automatically apply expenditures reported on 
the quarterly expenditure reports for the period of October 1, 2005 
through September 30, 2006 against the FY 2003 redistributed amounts 
and additional allotment amounts available through September 30, 2006 
and the other SCHIP allotments available in FY 2006.
4. Unexpended FY 2003 Allotments
    In Table 1 of this notice, we set forth the initial FY 2006 
shortfall calculation for the 50 States and the District of Columbia. 
In Table 2 of this final notice, we set forth the amount of States' 
unexpended FY 2003 allotments, as reflected by the States' expenditure 
submissions through November 30, 2005. These amounts are used to 
determine the States' FY 2003 redistributed allotment amounts. We 
established the amount of States' unexpended FY 2003 allotments at the 
end of the initial 3-year period of availability, based on the SCHIP-
related expenditures, as reported and certified by States to us on the 
quarterly expenditure reports (Form CMS-64 and/or Form CMS-21) by 
November 30, 2005. These expenditures are applied and tracked against 
the States' FY 2003 allotments (as published in the Federal Register on 
October 1, 2002 (67 FR 61632)) and other available allotments, on Form 
CMS-21C, Allocation of the Title XIX and Title XXI Expenditures to 
SCHIP Fiscal Year Allotment.
    By November 30, 2005, all States reported and certified their FY 
2005 fourth quarter expenditures (representing the last quarter of the 
3-year period of availability for FY 2003). Expenditures reflected in 
Table 2 below were taken from our Medicaid Budget and Expenditure 
System/State Children's Health Program Budget and Expenditure System 
(MBES/CBES) ``masterfile,'' which represents the State's official 
certified SCHIP and Medicaid expenditure reporting system records 
related to FY 2003 allotments. Based on States' expenditure reports 
submitted and certified through November 30, 2005, the total amount of 
States' FY 2002 SCHIP allotments that were unexpended at the end of the 
3-year period ending September 30, 2005, is $173,371,853.
5. Tables for Calculating the SCHIP FY 2003 Redistributed Allotments 
and Additional Allotments To Eliminate FY 2006 Shortfalls
    The following describes Table 1 and Table 2, which together present 
the calculation of the FY 2003 SCHIP redistribution amounts and the 
additional allotments to eliminate FY 2006 shortfalls.
    A total of $3,175,200,000 was allotted nationally for FY 2003, 
representing $3,142,125,000 in allotments to the 50 States and the 
District of Columbia, and $33,075,000 in allotments to the 
Commonwealths and Territories. Based on the quarterly expenditure 
reports, submitted and certified by November 30, 2005, 40 States fully 
expended their FY 2003 allotments, 11 States did not fully expend their 
FY 2003 allotments, and all 5 of the Commonwealths and Territories 
fully expended their FY 2003 allotments. Furthermore, of the 40 States 
that fully expended their FY 2003 allotments by the end of FY 2005, 
there are 12 States that are projected to have a FY 2006 shortfall 
totaling $454,326,685. For the 11 States that did not fully expend 
their FY 2003 allotments, their total FY 2003 allotments were 
$586,678,632 and the total expenditures applied against their FY 2003 
allotments were $413,306,779. Therefore, the total amount of unexpended 
FY 2003 allotments at the end of FY 2005 equaled $173,371,853 
($586,678,632 minus $413,306,779).
    In accordance with the redistribution calculation for FY 2003 
described above, of the total $173,371,853 in unexpended FY 2003 
allotments, $1,820,404 is available for redistribution to the five 
Commonwealths and Territories, and $171,551,449 is available for 
redistribution to the 12 FY 2006 shortfall redistribution States. Of 
the $283,000,000 available to eliminate States' FY 2006 shortfalls, 
$2,971,500 is allocated to the Commonwealths and Territories, and the 
remaining $280,020,500 is available for the shortfall States. The FY 
2003 redistributed allotment amounts and the additional allotment 
amounts to eliminate the shortfall will remain available through the 
end of FY 2006.

Key to Table 1--Initial FY 2006 Shortfall

    Table 1 presents the initial FY 2006 shortfall calculation for the 
50 States and the District of Columbia.
Column/Description
    Column A = State.
    Name of State, District of Columbia, the Commonwealth or Territory. 
This is the only column in Table 1 that includes Commonwealths and 
Territories. The initial FY 2006 shortfall calculation in Table 1 is 
not applicable to the Commonwealths and Territories and, therefore, the 
entries for the Commonwealths and Territories in the rest of the 
Columns in Table 1 are ``NA''.
    Column B = FY 2004 Allotments Carried Over From FY 2005. This 
column contains the amounts of States' FY 2004 allotments carried over 
from FY 2005 and available in FY 2006.
    Column C = FY 2005 Allotments Carried Over From FY 2005. This 
column contains the amounts of States' FY 2005 allotments carried over 
from FY 2005 and available in FY 2006.
    Column D = FY 2006 Allotments Initially Available Beginning FY 
2006. This column contains the FY 2006 SCHIP allotments, which are 
initially available in FY 2006, and were published in the Federal 
Register on June 24, 2005 (70 FR 36615).
    Column E = Total Available Allotments In FY 2006 Not Including FY 
2003 Redistributions. This column contains the States' total allotment 
amounts (not including any FY 2003 redistribution amounts) available in 
FY 2006. This amount is the sum of Columns B, C, and D.
    Column F = Projected Expenditures FY 2006 From November 2005 
Estimates. This column contains the amounts of States' projected FY 
2006 SCHIP and SCHIP-related expenditures as contained in the States' 
November 15, 2005 quarterly budget submission, as available to the 
Secretary through December 16, 2005.

[[Page 20703]]

    Column G = Initial FY 2006 Shortfall (SF) Not Including FY 2003 
Redistributions. This column contains the States' projected initial FY 
2006 shortfall amounts, calculated as Column F minus Column E.

Key to Table 2--Additional Shortfall Allotments for FY 2006 and 
Redistribution of the Unexpended SCHIP Allotments for Fiscal Year: 2003

    Table 2 contains the calculation of the States' FY 2003 
redistributed allotments and the additional allotments to eliminate the 
States' FY 2006 shortfalls.
Column/Description
    Column A = State. Name of State, District of Columbia, the 
Commonwealth or Territory.
    Column B = FY 2003 Allotments. This column contains the FY 2003 
SCHIP allotments for all States, which were published in the Federal 
Register on October 1, 2002 (67 FR 61632).
    Column C = Expenditures Applied Against FY 2003 Allotment. This 
column contains the cumulative expenditures applied against the FY 2003 
allotments, as reported and certified by all States through November 
30, 2005.
    Column D = Unexpended FY 2003 Allotments or ``None''. This column 
contains the amounts of unexpended FY 2003 SCHIP allotments for States 
that did not fully expend the allotments during the 3-year period of 
availability for FY 2003 (FYs 2003 through 2005), and is equal to the 
difference between the amounts in Column B and Column C. For States 
that did fully expend their FY 2003 allotments during the 3-year period 
of availability, the entry in this column is ``None.'' $173,371,853 
represents the total amount available for the FY 2003 redistribution.
    Column E = Initial FY 2006 Shortfall (SF) From Column G Table 1. 
This column contains the amount, if any, of the ``Initial FY 2006 
Shortfall'' for each State and the District of Columbia, taken from 
Column G, Table 1. If there is no projected shortfall for the State or 
District of Columbia, the entry in this column is ``NO SF.'' For the 
Commonwealths and Territories, the entry in Column E is ``NA.''
    Column F = SF States Only FY 2006 Targeted Low-Income Children 
Expend. This column provides the Shortfall States' projected targeted 
low-income children (TLIC) expenditures. For the Commonwealths and 
Territories, the entry in Column F is ``NA.''
    Column G = FY 2006 Additional Allotments to Eliminate FY 2006 SF. 
This column provides the FY 2006 additional allotments to eliminate 
shortfalls in FY 2006. For the States, this amount will not exceed the 
lesser of each shortfall State's initial shortfall amount in Column E 
or the amount of the TLIC expenditures in Column F. For the 
Commonwealths and Territories, the total of the additional allotments 
in Column G is equal to $2,971,500 (1.05 percent of $283,000,000); that 
total amount was then allocated amount the jurisdictions in accordance 
with the percentages specified in section 2104(c) of the Act.
    Column H = Remaining Shortfall. For each shortfall State, the 
amount in this column is equal to the amount in Column E (the initial 
SF) minus the amount in Column G (the additional allotments). For the 
Commonwealths and Territories, the entry in Column H is ``NA.''
    Column I = Percentage of Total. This column presents the remaining 
shortfall amount (if any) for each shortfall State from Column H as a 
percentage of the total remaining shortfalls in Column H for all 
shortfall States. For the Commonwealths and Territories, the entry in 
Column I is ``NA.''
    Column J = FY 2003 Redistribution. This column contains the 
States'' FY 2003 redistribution, calculated as the percentage in column 
I multiplied by $171,551,449, the total amount available for 
redistribution to the States. For the Commonwealths and Territories, 
the entry in Column J is the jurisdiction's proportionate share of a 
total $1,820,404 (1.05 percent of $173,371,853, the total unexpended FY 
2003 allotments).
    Column K = Total of FY 2006 Additional Allotments + FY 2003 
Redistribution. This Column shows the sum of the additional allotment 
amounts in Column G and the FY 2003 redistribution amount in Column J.
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B. Continued Authority for Qualifying States To Use Certain Funds for 
Medicaid Expenditures

    Section 1(b) of Pub. L. 108-74, as amended by Pub. L. 108-127, 
added new section 2105(g) to the Act under which certain ``qualifying 
States'' that met prescribed criteria could elect to use up to 20 
percent of the States' available SCHIP allotments for FY 1998, 1999, 
2000, or 2001 as additional

[[Page 20706]]

Federal financial participation for expenditures under the State's 
Medicaid program, instead of expenditures under the State's SCHIP. The 
Federal Register published on July 23, 2004 (69 FR 44013) described the 
definition of qualifying State and indicated how the 20 percent 
allowances for such States would be calculated and applicable 
expenditures tracked against them. Section 6103 of the DRA amended 
section 2105(g)(1)(A) of the Act to provide for continued authority for 
qualifying States to use a portion of their available FY 2004 and FY 
2005 SCHIP allotments. The 20 percent allowances for qualifying States 
associated with the FY 2004 and FY 2005 allotments have been calculated 
in the same way as we determined and tracked the 20 percent allowances 
associated with the FY 1998 through FY 2002 fiscal years. The 
availability of the 20 percent allowances for FY 2004 and FY 2005, and 
the application of expenditures against such allowances, will be in 
accordance with the same provisions as in the July 23, 2004 Federal 
Register.

III. Regulatory Impact Statement

[If you choose to comment on issues in this section, please include the 
caption ``Regulatory Impact Statement'' at the beginning of your 
comments.]
    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980 Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any one year). We have 
determined that with respect to the FY 2003 redistribution amounts, 
this notice is not a major rule. The States' FY 2003 SCHIP allotments, 
totaling $3,175,200,000 were originally published in a notice in the 
Federal Register (67 FR 61632) and allotted to States in FY 2003. This 
notice does not revise the amount of the 2003 allotments originally 
made available to the States, but rather, sets forth the procedure for 
redistributing the amounts of those FY 2003 allotments which were 
unexpended at the end of FY 2004 (the end of the 3-year period of 
availability referenced in section 2104(e) of the Act), and announces 
the amount of the FY 2003 allotments to be redistributed to the 
redistribution States and the availability of the unexpended FY 2003 
allotment amounts to the end of 2006, in accordance with SCHIP statute.
    This notice also describes the process for distributing additional 
allotments to States that are projected to have a shortfall in FY 2006 
in SCHIP funds; specifically, under section 2104(d) of the Act, as 
amended by section 6101(a) of the DRA, $283 million was appropriated 
and was specifically authorized to eliminate FY 2006 shortfalls. Since 
the aggregate amount of the additional allotments is $283 million, with 
respect to this provision this notice is considered a major rule. In 
that regard, as indicated above, this notice describes the basis for 
determining the amount of the additional allotment of each State to 
eliminate the FY 2006 shortfalls in accordance with the provisions of 
this legislation. In determining the regulatory impact analysis for 
this provision of the DRA, the primary considerations were to ensure 
that: (1) The calculation of the amounts of the additional amounts was 
determined in accordance with the legislation, and (2) the amounts of 
the additional allotments were used for the purposes specified in the 
legislation. As indicated in the tables 1 and 2 in this notice, with 
respect to the first consideration, we determined that the total 
shortfall in the 12 States having such shortfalls was $454 million. 
With respect to the second consideration, we considered the amounts of 
each of these 12 States' estimated targeted low income children 
expenditures and the amounts of their FY 2006 shortfalls to ensure that 
the additional allotments did not exceed these amounts. Therefore, the 
aggregate economic impact of the additional allotments determined in 
this way will be to provide Federal funds to the impacted States in the 
aggregate amount of $283 million, and that these amounts may only be 
used by the States to pay for the targeted low-income children 
expenditures.
    Because State participation in the SCHIP program is voluntary, any 
payments and expenditures States make or incur on behalf of the program 
that are not reimbursed by the Federal Government are made voluntarily. 
The RFA requires agencies to analyze options for regulatory relief of 
small businesses. For purposes of the RFA, small entities include small 
businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6 million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. We are not preparing an 
analysis for the RFA because we have determined that this final notice 
will not have a significant economic impact on a substantial number of 
small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Core-Based 
Statistical Area and has fewer than 100 beds. We are not preparing an 
analysis for section 1102(b) of the Act because we have determined that 
this final notice will not have a significant impact on the operations 
of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $120 million. This final notice will 
not create an unfunded mandate on States, tribal, or local governments. 
Therefore, we are not required to perform an assessment of the costs 
and benefits of this notice.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have reviewed this final notice and have determined 
that it does not significantly affect States' rights, roles, and 
responsibilities.
    Low-income children will benefit from payments under this program 
through increased opportunities for health insurance coverage. We 
believe this final notice will have an overall positive impact by 
informing States, the District of Columbia, and Commonwealths and 
Territories of the extent to which they are permitted to expend funds 
under their child health

[[Page 20707]]

plans using the FY 2003 allotment's redistribution amounts.
    In accordance with the provisions of Executive Order 12866, this 
final notice was reviewed by the Office of Management and Budget.

IV. Waiver of Delay in Effective Date

    [If you choose to comment on issues in this section, please include 
the caption ``Waiver of Notice of Proposed Rulemaking and Delayed 
Effective Date'' at the beginning of your comments.]
    We ordinarily publish a proposed notice in the Federal Register to 
provide a period of public comment before the provisions of a notice, 
such as this, are effective in accordance with section 553(b) of the 
Administrative Procedure Act (APA) (5 U.S.C. 553(b)). We also 
ordinarily provide a 30-day delay in the effective date of the 
provisions of a notice in accordance with section 553(d) of the APA (5 
U.S.C. 553(d)). However, we can waive both the notice of proposed 
rulemaking and the 30-day delay in effective date if the Secretary 
finds, for good cause, that it is impracticable, unnecessary, or 
contrary to the public interest, and incorporates a statement of the 
finding and the reasons in the notice.
    We find there is good cause to waive notice of proposed rulemaking 
and the delay in the effective date of this issuance of the FY 2003 
redistributed allotments and the additional allotments to eliminate the 
FY 2006 shortfall in SCHIP funding because such notice of proposed 
rulemaking and the delay in the effective date would be contrary to the 
public interest.
    We determined the amounts of the FY 2003 redistributed allotments 
and additional allotments to eliminate the FY 2006 shortfall as 
expeditiously as possible in order to make them available to the States 
as soon as possible. To that end, all States had until November 30, 
2005 to submit their required fourth quarter FY 2005 expenditure 
reports. In determining the FY 2003 redistributed amounts, we used 
State projected expenditures as contained in the most recent (November, 
2005) States' quarterly budget report submissions. The redistributed FY 
2003 allotments make available Federal funds to the recipient 
redistribution States, which is especially important for those 
redistribution States that may need such funds.
    Furthermore, under section 2104(e) of the Act and section 
2104(d)(5) of the Act, the FY 2003 redistributed allotments and the 
additional allotments to eliminate the FY 2006 shortfall in SCHIP 
funding, are only available through the end of the fiscal year in which 
they are redistributed/distributed, for example, until the end of FY 
2006 (September 30, 2006). We believe it is important that we issue 
these redistributed allotments and additional allotments as soon as 
possible. Delay in States receiving those funds could result in 
disruption of program operations. Therefore, in the interest of 
ensuring that the FY 2003 redistributed allotments and the additional 
allotments to eliminate the FY 2006 shortfall in SCHIP funding are made 
available without delay to those States that need such funds, we are 
waiving notice of proposed rulemaking and the 30-day delay in effective 
date, and are publishing this issuance of the Federal Register as a 
notice with comment period.
    Accordingly, we provisionally will make the FY 2003 redistributed 
funds and the additional allotments to eliminate the FY 2006 shortfall 
in SCHIP funding available to any State that has spent all of its 
available SCHIP allotments effective immediately upon publication of 
this notice with comment period. These FY 2003 redistributed funds are 
subject to final adjustment based on comments received in response to 
this notice with comment period. Any such adjustments resulting from 
review and analysis of comments will be published in the Federal 
Register within 60 days of the close of the comment period. (Section 
1102 of the Social Security Act (42 U.S.C. 1302).)

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

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

    Dated: March 17, 2006.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 6, 2006.
Michael O. Leavitt,
 Secretary.
[FR Doc. 06-3833 Filed 4-19-06; 12 pm]
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