Order Code RL31602
Report for Congress
Received through the CRS Web
Medicaid, SCHIP, and Other Health Provisions in
H.R. 4954: The Medicare Modernization and
Prescription Drug Act of 2002, and S. 3018: The
Beneficiary Access to Care and Medicare Equity
Act of 2002
October 9, 2002
Jean Hearne and Elicia Herz
Specialists in Social Legislation
Domestic Social Policy Division
Evelyne Baumrucker and Christine Devere
Analysts in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Medicaid, SCHIP, and Other Health Provisions in H.R.
4954: The Medicare Modernization and Prescription
Drug Act of 2002 , and S. 3018: The Beneficiary Access
to Care and Medicare Equity Act of 2002
Summary
Medicaid is a joint federal-state entitlement program that pays for medical
assistance primarily for low-income persons who are aged, blind, disabled, members
of families with dependent children, and certain other pregnant women and children.
Within broad federal guidelines, each state designs and administers its own program.
The federal government shares in a state’s Medicaid costs by means of a statutory
formula designed to provide a higher federal matching rate to states with lower per
capita incomes. The State Children’s Health Insurance Program (SCHIP) is another
joint federal-state program that allows states to extend coverage to children in
families with income that is too high to qualify for Medicaid coverage.
Two bills under consideration in the House and the Senate would make
important changes to Medicaid and SCHIP. The Medicare Modernization and
Prescription Drug Act of 2002 (H.R. 4954), passed the House on June 28, 2002. On
October 1, 2002, the Senate Committee on Finance introduced the Beneficiary Access
to Care and Medicare Equity Act of 2002 (S. 3018). While the bills are very
different from each other, both are largely comprised of provisions affecting the
Medicare program, and both include important changes to Medicaid, SCHIP and
other health programs. Among the Medicaid provisions, both bills would increase
annual disproportionate share hospital (DSH) allotments to states beginning in
FY2003, but use different methods to achieve those increases. S. 3018 would also
temporarily increase the federal Medicaid matching rate for certain states and would
provide additional funds to states for fiscal relief through the Social Services Block
Grant program, a program that funds a wide variety of social services programs.
With respect to SCHIP, S. 3018 would significantly change the method by which
unspent federal funds are redistributed among states. Finally, with respect to both
Medicaid and SCHIP, S. 3018 places on both states and the Secretary of HHS certain
public notice and hearing requirements, as well as requirements regarding receipt and
consideration of public comments in the waiver development, review and approval
process. It also clarifies other parameters of the Secretary’s waiver authority.
The following side-by-side comparison provides a brief description of current
law and the changes that would be made to Medicaid, SCHIP and other health
programs under H.R. 4954 and S. 3018. These provisions can be found in Title IX
of H.R. 4954, and Titles VII and VIII of S. 3018. The other titles of both bills are
devoted to major changes to the Medicare program (not described here). In addition,
Medicare provisions in Title VIII of S. 3018 are not described here.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Disproportionate Share Hospital (DSH) Payments Under Medicaid . . . 2
Redistribution Rules Under the State Children’s Health Insurance
Program (SCHIP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Waivers under Medicaid and SCHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Medicaid’s Federal Medical Assistance Percentage (FMAP) . . . . . . . . 5
List of Tables
Medicaid and SCHIP Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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Medicaid, SCHIP, and Other Health
Provisions in H.R. 4954: The Medicare
Modernization and Prescription Drug Act of
2002 , and S. 3018: The Beneficiary Access
to Care and Medicare Equity Act of 2002
Introduction
Medicaid is a joint federal-state entitlement program that pays for medical
assistance primarily for low-income persons who are aged, blind, disabled, members
of families with dependent children, and certain other pregnant women and children.
Within broad federal guidelines, each state designs and administers its own program.
The federal government shares in a state’s Medicaid costs by means of a statutory
formula designed to provide a higher federal matching rate to states with lower per
capita incomes. In FY2001, federal matching rates ranged from 50% to 76.8% of a
state’s expenditures for Medicaid items and services. The State Children’s Health
Insurance Program (SCHIP) is another joint federal-state program that allows states
to extend coverage to children in families with income that is too high to qualify for
Medicaid coverage. As with Medicaid, each state designs and administers its own
program and the federal government shares in state’s costs by matching state
spending. The SCHIP matching formula is based on the Medicaid matching formula,
but results in higher matching rates that ranged from 65% to 83.8% in FY 2001.
Two bills under consideration in the House and the Senate would make
important changes to Medicaid and SCHIP. The Medicare Modernization and
Prescription Drug Act of 2002 (H.R. 4954), passed the House on June 28, 2002. On
October 1, 2002, the Senate Committee on Finance introduced the Beneficiary Access
to Care and Medicare Equity Act of 2002 (S. 3018). While the bills are very
different from each other, both are largely comprised of provisions affecting the
Medicare program, and both include important changes to Medicaid, SCHIP and
other health programs. Among the Medicaid provisions, both bills would increase
annual disproportionate share hospital (DSH) allotments to states beginning in
FY2003, but use different methods to achieve those increases. S. 3018 would also
temporarily increase the federal Medicaid matching rate for certain states and would
provide additional funds to states through the Social Services Block Grant program,
a program that funds a wide variety of social services programs. With respect to
SCHIP, S. 3018 would significantly change the method by which unspent federal
funds are redistributed among states. Finally, with respect to both Medicaid and
SCHIP, S. 3018 places on both states and the Secretary of HHS certain public notice
and hearing requirements, as well as requirements regarding receipt and

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CRS-2
consideration of public comments in the waiver development, review and approval
process. It also clarifies other parameters of the Secretary’s waiver authority. The
following sections describe the recent legislative changes as well as the major
proposed amendments in H.R. 4954 and S. 3018.
Disproportionate Share Hospital (DSH) Payments Under Medicaid.
Since 1981, states have been required to recognize, in establishing their payment
rates, the situation of hospitals that serve a disproportionate number of Medicaid
beneficiaries and low-income patients. These payments are referred to as DSH
payments or DSH adjustments. The DSH adjustment was intended to offset the costs
to hospitals of treating uninsured, low-income patients, and to protect access to care
for vulnerable populations. Under broad federal guidelines, each state determines
which hospitals receive DSH payments and the payment amounts to each. States that
contract with health maintenance organizations (HMOs) or other prepaid managed
care providers may include DSH expenses in the payment rates to contractors.
DSH payments became a significant part of the program after 1989 when they
grew from just under $1 billion to almost $17 billion by 1992. During that time,
states’ Medicaid budgets were facing a number of upward pressures while states were
learning about financing techniques that made it easier to collect increased DSH
payments from the federal government.
In 1991, Congress intervened to control the growth of these expenditures by
limiting DSH payments by state and setting national limits. The new law was
successful. After 1992, DSH payments increases slowed considerably although the
level of national DSH payments remained high at just under $19 billion in 1995.
Significant reductions in DSH payments were included in the Balanced Budget
Act of 1997. BBA-97 lowered DSH payments by establishing “allotments” or
ceilings on DSH payments for each state. The allotments were specified for fiscal
years beginning in 1998 through 2002. For most states, those amounts declined over
the 5-year period. Thereafter, the DSH allotment for a state was to equal its
allotment for the preceding fiscal year increased by the percentage change in the
consumer price index for all urban consumers (CPI-U) as estimated by the Secretary
for the previous fiscal year, subject to a ceiling of 12% of the total amount of
expenditures for Medicaid benefits during the fiscal year.
Subsequently, the Medicare, Medicaid and SCHIP Balanced Budget
Refinements Act of 1999 (BBRA-99, P.L. 106-113) included provisions increasing
the Medicaid DSH allotments for certain states and the District of Columbia. Then
under Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of
2000 (BIPA-2000, P.L. 106-554), new rules governing federal DSH payments for
FY2001 and FY2002 were established. The “special rule” directed that DSH
allotments for the two years be based on FY2000 allotments increased by inflation -
instead of on the declining amounts specified in BBA-97. Allotments for FY2003
and thereafter were to revert to amounts calculated based on the methodology
specified in BBA-97. BIPA-2000 also extended a special hospital-specific DSH limit
that had previously applied only to certain public hospitals in California to such
hospitals in all states for a 2-year period. Finally, additional funds were provided for

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CRS-3
certain state public hospitals not receiving DSH payments that have a low-income
utilization rate in excess of 65%.
Legislation. During economic downturns states’ Medicaid eligibility rolls
often expand at the same time as tax receipts, which help to fund those programs,
contract. Recognizing this increased fiscal pressure that states are under since the
economic slowing began over one year ago, both bills include provisions to increase
annual state DSH allotments for fiscal years beginning in 2003. Each bill, however,
uses different methods to achieve those increases. H.R. 4954 would raise DSH
allotments for FY2003 by setting those amounts equal to FY2001 allotments (as
specified in BBA-97), increased by the percentage change in the CPI-U for FY 2001.
Allotments for FY2004 and thereafter would be equal to the allotment for the
previous year, increased by 1.7% unless the Secretary determines that the allotment
under this provision would equal (or no longer exceed) the allotment for that state
that would have been in effect under prior law. For these states, beginning in the first
fiscal year that their allotment would equal or no longer exceed the prior law levels,
their allotment would be equal to the allotment for the previous year increased by the
percentage change in the CPI-U for the previous year.
S. 3018 would raise DSH allotments by specifying that 2003 allotments would
be calculated to be equal to FY2002 allotments under BIPA-2000 increased by the
percentage change in the CPI-U for FY2002; for 2004 they would be equal to
FY2003 allotments increased by the percentage change in the CPI-U for FY2003;
and for 2005, they would be equal to FY2004 allotments increased by the percentage
change in the CPI-U for FY2004. For FY2006, allotments would be based on the
amounts specified in BBA-97 for FY2002 increased by the percentage change in the
CPI-U for fiscal years 2002 through 2005. For FY2007 and thereafter, allotments
would be calculated based on the previous years’ amount increased by percentage
change in the CPI-U for the previous fiscal year. In addition, for FY2003 through
FY2005, S. 3018 would increase allotments for the District of Columbia and for
certain extremely low DSH states. The bill specifies special formulas for these
purposes.
Redistribution Rules Under the State Children’s Health Insurance
Program (SCHIP). SCHIP, created under BBA-97, is the largest publicly funded
effort to provide health insurance to children since Medicaid was enacted in 1965.
The program offers federal matching funds for states and territories to provide health
insurance coverage to uninsured, low-income children in families whose annual
incomes are higher than states’ Medicaid eligibility thresholds.
The original enactment appropriated federal matching grants totaling $39.7
billion for SCHIP for FY1998 through FY2007. Allotment of funds among the states
is determined by a formula set in law. Each annual allotment is available to states
for a period of 3 years. Under current law, allotments not spent at the end of the
applicable 3-year period will be redistributed by a method to be determined by the
Secretary of HHS to states that have fully exhausted their original allotments for that
year. Redistributed funds not spent by the end of the fiscal year in which they are
reallocated will expire.

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CRS-4
BIPA-2000 created a special rule for the redistribution and availability of
unused FY1998 and FY1999 SCHIP allotments. The change decreased the amount
available for redistribution to states that had exhausted their original allotments for
those years by allowing states that had not spent their full allotments to retain a
portion of their unspent funds. Specifically, out of the total pool of unspent funds for
a given year, states that exhausted their allotments were given amounts equal to their
excess expenditures. Then states which had not exhausted their allotments received
an amount equal to their proportional contribution to the pool of unspent funds.
S. 3018 builds upon BIPA-2000 by establishing a method for redistributing
unspent allotments for FY2000 forward. For each of FY2000 through FY2003, states
that exhaust their original allotments would receive amounts equal to their excess
expenditures, subject to specific annual caps (60% - FY2000 and FY2001; 70% -
FY2002; 80% - FY2003) on unspent funds. The distribution method for such funds
among these states, should the pool of available funds be insufficient to cover all
excess expenditures, is left to the Secretary to determine. For FY2004 forward,
redistribution among such states would be the same as provided under BIPA-2000.
For each of FY2000 through FY2003, the remaining unspent funds would be
distributed among states that do not use their full allotments, subject to specific
annual floors (40% - FY2000 and FY2001; 30% - FY2002; 20% - FY2003) on
unspent funds. Each such state would receive an amount equal to the ratio of its
contribution to the total pool of unspent funds to the remaining available funds.
Again, for FY2004 forward, redistribution among such states would be the same as
provided under BIPA-2000. For FY2004 forward, S. 3018 also would establish a
caseload stabilization pool to provide certain states with additional SCHIP funding.
Any remaining unspent redistributed dollars beginning with the FY1998
appropriation would become part of this pool. In addition, the bill specifies that
unspent funds in the pool would remain in the pool (i.e., they do not expire). Eligible
states include those whose total cumulative spending through the end of the previous
fiscal year exceeds their cumulative original allotments for the same time period.
These states would receive an amount equal to the ratio of such state’s original
allotment (for the previous fiscal year) to the total original allotments of all eligible
states (for the same prior fiscal year).
Waivers under Medicaid and SCHIP. Section 1115 of the Social Security
Act provides the Secretary of HHS with broad authority to conduct research and
demonstration projects under Medicaid (and five other programs). Under this
authority, the Secretary may waive provisions in Section 1902 of Medicaid statute
(usually freedom of provider choice, comparability of benefits, and statewideness).1
Most large-scale statewide waivers are approved for a 5-year period. The costs of
such waivers are allowable expenditures under the applicable program. SCHIP is
not identified in Section 1115. However, the SCHIP statute states that Section 1115,
pertaining to research and demonstration projects, applies to SCHIP but does not
specify which sections may be waived.
1 Other sections in Medicaid statute allow waiver of other provisions under certain
circumstances.

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CRS-5
Congress has twice changed Section 1115 authority as it applies to the Medicaid
waiver review and approval process. First, BBA-97 provided a process for a 3-year
extension of Medicaid statewide comprehensive Section 1115 waiver projects beyond
the initial 5-year term. Second, BIPA-2000 defined a process for approving
extensions beyond initial 3-year extensions.
Much of the detail surrounding the policies and procedures for reviewing and
approving Section 1115 waiver proposals has been issued by the Secretary of HHS
through written guidance. For example, in 1994, the Secretary published a notice in
the Federal Register outlining requirements with respect to public notification and
involvement during the development phase of proposed waiver projects under
Medicaid. (SCHIP did not yet exist at that time.) Since that time, the Secretary has
provided other waiver guidance. In a July 25, 2001 letter to the House Committee
on Energy and Commerce, HHS described its public notification requirements for the
3-year waiver extensions provided by BBA-97. In other letters to state Medicaid
directors and to state health officials, the Secretary has described policy with respect
to overall budget neutrality requirements, coverage of childless adults under SCHIP,
as well as further details on public notice and involvement requirements. Most
recently, under the current Bush Administration, a new Health Insurance Flexibility
and Accountability (HIFA)1115 Waiver Initiative for Medicaid and SCHIP was
established and guidance and technical information for this initiative was made
available to states through postings to the agency’s website. The initiative
encourages states to develop statewide projects that coordinate Medicaid and SCHIP
with private health insurance coverage and target uninsured individuals with income
below 200% of the federal poverty level.
S. 3018 responds to recent concerns that some approved waivers exceed the
statutory authority of the Secretary and that explicit statutory procedures would
improve the waiver approval process. The bill places on both states and the Secretary
of HHS certain public notice and hearing requirements, and requirements regarding
receipt and consideration of public comments in the waiver development, review and
approval process. It would clarify that: (1) the waiver of a specific section under a
given title must promote the objectives of that title, (2) the requirements under
Medicaid’s early and periodic screening, diagnostic and treatment program for
children may not be waived, and (3) the Secretary may not approve waivers that
would use SCHIP funds to cover childless adults (excluding caretaker relatives).
Medicaid’s Federal Medical Assistance Percentage (FMAP). The
federal share of the cost of Medicaid items and services (excluding administrative
expenses) is established by a formula set in statute. Determined annually, the FMAP
is designed so that the federal government pays a larger portion of Medicaid costs in
states with lower per capita income relative to the national average (and vice versa
for states with higher per capita income). FMAP must not fall below 50% and may
not exceed 83%. FMAP for the territories is statutorily set at 50%. In the territories,
Medicaid is also subject to spending caps. Thus, the federal government pays 50%
of the cost of Medicaid items and services up to those spending caps.
While the underlying FMAP formula for all states has not been changed,
Congress has modified FMAP in certain situations. In BBA-97, the FMAP for the
District of Columbia was permanently raised to 70%. It also increased Alaska’s

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CRS-6
FMAP to 59.8% for FY1998 through FY2000. Under BIPA-2000, the formula for
calculating the state percentage and thus the federal share for Alaska for FY2001
through FY2005 was changed. The state percentage for Alaska is calculated using
an adjusted per capita income calculation instead of the statewide average per capita
income generally used. The adjusted per capita income for Alaska is calculated as
the 3-year average per capita income for the state divided by 1.05.
As with the DSH provisions, the Senate bill responds to states’ concerns that
recent fiscal pressure may result in Medicaid cuts. To ease states’ burden, S. 3018
would temporarily increase FMAPs for FY2003. Spending caps for the territories
would be increased. Only states and territories that maintain Medicaid eligibility
levels as of January 1, 2002 (or reinstate eligibility levels as of that date) would be
eligible for the FMAP increase. This bill would also appropriate $1 billion in
additional temporary grants under the Social Services Block Grant (Title XX of the
Social Security Act). The grant allotments for each state and territory are specified,
and these funds may be used for services directed at the goals set forth in Title XX.
The following side-by-side comparison provides a brief description of current
law and the changes made to Medicaid, SCHIP and other health programs under H.R.
4954 and S. 3018. These provisions can be found in Title IX of H.R. 4954, and
Titles VII and VIII of S. 3018. The other titles of both bills are devoted to major
changes to the Medicare program (not described here). In addition, Medicare
provisions in Title VIII of S. 3018 are not described here.
CRS has published three reports on the non-Medicare provisions of BBA-97,
BBRA-99, and BIPA-2000. These are: CRS Report 98-132 EPW, Medicaid: 105th
Congress, CRS Report RL30400, Medicaid and the State Children’s Health
Insurance Program (SCHIP): Provisions in the Consolidated Appropriations Act for
FY2000, and CRS Report RL30718, Medicaid, SCHIP and Other Health Provisions
in H.R. 5661: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000.

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CRS-7
Medicaid and SCHIP Provisions
Provisions
Current Law
H.R. 4954
S. 3018
National Bipartisan Commission on the
No provision.
Section 901. The provisions would
No provision.
Future of Medicaid
establish a 17-member, National
Bipartisan Commission on the Future
of Medicaid to analyze and
recommend changes regarding the
financial condition of the Medicaid
program. An authorization of $1.5
mi l l i o n wo u l d s u p p o r t t h e
Commission.
Disproportionate share hospital (DSH)
The federal share of Medicaid
Section 902. DSH allotments for
Section 701. Would extend BIPA-
payments
disproportionate share hospital (DSH)
FY2003 would be increased by setting
2000’s special rule for three additional
payments is capped at specified
those amounts equal to FY2001
years, raising DSH allotments, subject
amounts for each state for FY1998
allotments (as specified in BBA-97),
to the current law limit of 12% of
through FY2002. A state’s allotment
increased by the percentage change in
medical assistance spending, for fiscal
for years after 2002 will be equal to its
the CPI-U for FY2001. Allotments
years 2003, 2004, and 2005.
specified allotment for the previous
for FY2004 and thereafter would be
Allotments for 2003 would be
year increased by the percentage
equal to the allotment for the previous
calculated to be equal to FY2002
change in the CPI-U for the previous
year, increased by 1.7% unless the
allotments under BIPA-2000 increased
year subject to a limit of no more than
Secretary determines that the
by the percentage change in the CPI-U
12% of spending for medical assistance
allotment under this provision would
for FY2002; for 2004 would be equal
for that year. BIPA-2000 (P.L. 106-
equal (or no longer exceed) the
to FY2003 allotments increased by the
554) raised allotments for FY2001 and
allotment for that state that would
percentage change in the CPI-U for
FY2002, but allotments for FY2003
have been in effect under prior law.
FY2003; for 2005 would be equal to
and thereafter revert to the amounts
For these states, beginning in the first
FY2004 allotments increased by the
calculated as specified above.
fiscal year that their allotment would
percentage change in the CPI-U for
equal or no longer exceed the prior
FY2004. For FY2006, allotments
law levels, their allotment would be
would be based on the amounts
equal to the allotment for the previous
specified in BBA-97 for FY2002
year increased by the percentage
increased by the percentage change in
change in the CPI-U for the previous
the CPI-U for fiscal years 2002 through
year.
2005. For FY2007 and thereafter,
allotments would be calculated based
on the previous years’ amount
increased by the percentage change in
the CPI-U for the previous fiscal year.
Disproportionate share payments for
BBA-97 specified DSH allotments for
No provision.
Section 701. Subject to the current law
the District of Columbia
the District of Columbia are $23
limit of 12% of spending for medical
million for each of fiscal years 1998
assistance, DSH allotments for FY2003
through 2002. BBRA-99 increased
for the District of Columbia would be

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CRS-8
Provisions
Current Law
H.R. 4954
S. 3018
DSH allotments for the District of
calculated by increasing $49 million by
Columbia to $32 million for each of
the percentage change in the CPI-U for
fiscal years 2000 through 2002. DSH
fiscal years 2000, 2001 and 2002. For
allotments for each year after 2002 will
FY2004, the allotment would be equal
be equal to its specified allotment for
to the FY2003 allotment as calculated
the previous year increased by the
above, increased by the percentage
percentage change in the CPI-U for the
change in the CPI-U for FY2003. For
previous year subject to a limit of no
FY2005, the allotment would be equal
more than 12% of spending for medical
to the FY2004 allotment increased by
assistance for that year.
the percentage change in the CPI-U for
FY2004. For FY2006 and thereafter,
the allotment would calculated in the
manner specified for all other states.
Increase in floor for extremely low
For extremely low DSH states, i.e.,
No provision.
Section 702. Would create
a
DSH states
states whose FY1999 federal and state
temporary increase in the allotments for
DSH expenditures (as reported to CMS
certain extremely low DSH states for
on August 31, 2000) are greater than
FY2003 through FY2005. For states
zero but less than 1% of the state’s total
with DSH expenditures for FY2001 (as
medical assistance expenditures during
reported to CMS as of August 31,
that fiscal year, the DSH allotments for
2002) that are greater than zero but less
FY2001 would be equal to 1% of the
than 3% of the state’s total medical
state’s total amount of expenditures
assistance expenditures during that
under their plan for such assistance
fiscal year, the bill would raise the
during that fiscal year. For subsequent
DSH allotments for FY2003 to 3% of
fiscal years, the allotments for
the state’s total amount of expenditures
extremely low DSH states would be
for such assistance during that fiscal
equal to their allotment for the previous
year. For FY2004, allotments would be
year, increased by the percentage
calculated by increasing FY2003
change in the CPI-U for the previous
amounts by the percentage change in
year, subject to a ceiling of 12% of that
the CPI-U for FY2003; and for
state’s total medical assistance
FY2005, by increasing FY2004
payments in that year.
amounts by the percentage change in
the CPI-U for FY2004.
Medicaid Pharmacy Assistance
No provision.
Section 903. States with approved
No provision.
Program
Medicaid state plan amendments
could receive grants to assist
pharmacies in implementing the new
prescription drug benefit proposed
under Part D of Title XVIII. For each
of fiscal years 2004 through 2007, the
provision would authorize $150

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CRS-9
Provisions
Current Law
H.R. 4954
S. 3018
million to be allotted among the states
for such programs. The Secretary
would be required to develop a
method for the allocation of those
funds among states, taking into
account the distribution among states
of priority pharmacies; small
pharmacies and those serving in rural
or underserved areas.
5-Year extension of the Medicare
Federal law specifies several Medicare
No provision.
Section 703. Extends the QI-1
qualified individual (QI-1) program
subgroups that are entitled to limited
program until December 2007. Each
under Medicaid
Medicaid protection. One group of
state’s allocation is equal to the ratio of
qualified individuals (QI-1s) includes
twice all its QI-1 individuals to the sum
Medicare beneficiaries entitled to Part
of these counts across all states. New
A coverage with income between 120-
annual federal allocations for FY2003
135% of the federal poverty level or
through FY2007 would be set at $400
FPL, (and who also meet certain
million for each year.
resource standards) who are not
otherwise eligible for Medicaid. For
this group, Medicaid pays the monthly
Part B premium. Expenditures for the
QI-1 program are paid 100% by the
federal government up to the state’s
allocation based on a distributional
formula set in law. Total federal
allocations are $200 million for
FY1998, $250 million in FY1999, $300
million in FY2000, $350 million in
FY2001, and $400 million in FY2002.
The QI-1 temporary grant program
ends as of December 31, 2002.

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CRS-10
Provisions
Current Law
H.R. 4954
S. 3018
Inpatient drug prices and certain
Medicaid drug rebates are calculated
No provision.
Section 704. The provision would
public hospitals
based on the difference between the
modify the definition of “best price”
Average Manufacturer’s Price and the
for the purpose of calculating Medicaid
manufacturer’s “best price”. In
drug rebates, to also exclude the
determining the “best price” for a drug
discounted inpatient drug prices
sold by a manufacturer, certain
charged to certain Medicare
discounted prices and fee schedules are
disproportionate share hospitals.
excluded. The special discounted
prices for outpatient drugs negotiated
by the Office of Pharmacy Affairs (of
HHS) with drug manufacturers on
behalf of certain clinics and safety net
providers are one example of prices
excluded from Medicaid’s best price
determination. Because of this
exclusion from Medicaid’s best price
definition, the discounts available to
safety net providers have no bearing on
the calculation of drug rebates under
the Medicaid program allowing those
providers to negotiate better rates with
manufacturers – since Medicaid rebates
will not change with the size of their
negotiated discounts. Discounted
prices for inpatient drugs for many
safety net providers, however, are
included in the Medicaid best price.

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CRS-11
Provisions
Current Law
H.R. 4954
S. 3018
SCHIP allotments: Changes to Rules
Funds for the SCHIP Program are
No provision.
Section 705(a). Establishes a method
for Redistribution and Extended
authorized and appropriated for
for redistributing unspent allotments
Availability of Fiscal Year 2000 and
FY1998 through FY2007. From each
for FY2000 forward. For jurisdictions
Subsequent Fiscal Year Allotments
year’s appropriation, a state is allotted
that exhausted their original allotment,
an amount as determined by a formula
for each of FY2000 through FY2003,
set in law. Funds not drawn from a
each would receive an amount equal to
state’s allotment by the end of each
their spending in excess of their
fiscal year continue to be available to
original exhausted allotment, subject to
that state for 2 additional fiscal years.
caps on available unspent funds. Funds
For FY2000 forward, allotments not
available for redistribution to these
used at the end of 3 years will be
jurisdictions would be capped at
redistributed by the Secretary of Heath
specified percentages– 60% of unspent
and Human Services (HHS) to states
allotments for FY2000 and FY2001,
that have fully spent their original
70% for FY2002, and 80% for
allotments for that year.
FY2003. Territories would receive an
amount equal to 1.05% of the total
BIPA-2000 created a special rule
amount available for redistribution
for the redistribution and availability of
multiplied by each territory’s
unused FY1998 and FY1999 SCHIP
proportion of the original allotment
allotments. This special rule decreased
available for all territories. For
the amount available for redistribution
FY2004 and subsequent fiscal years,
to states that had used all of their
the redistribution for those states and
original allotments for these two years
territories would be the same as under
and allowed states that had not spent all
BIPA-2000.
of their allotments to retain some of
their unspent funds.
For states that did not use all their
original SCHIP allotments, for each of
FY2000 through FY2003, total
amounts available for retention (after
the reduction of amounts for states and
territories as described above) would be
subject to a floor– 40% for FY2000 and
FY2001, 30% for FY2002, and 20%
for FY2003. Of that amount, each state
would receive a ratio of its contribution
to the total pool of unspent funds to the
remaining available funds. For
FY2004 and subsequent fiscal years,
amounts available for retention by such
states, is the same as under BIPA-2000.

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CRS-12
Provisions
Current Law
H.R. 4954
S. 3018
SCHIP allotments: Length of the
The original enactment of SCHIP
No provision.
Section 705(a). Extends availability
availability of reallocated funds
specifies that redistributed funds not
of the FY1998 and FY1999
used by the end of the fiscal year in
redistributed funds through the end of
which they are reallocated officially
FY2003. For FY2000 and beyond,
expire.
reallocated funds would be available
for 1 fiscal year.
Redistributed and retained funds from
FY1998 and FY1999 are available
through the end of FY2002.
SCHIP allotments: Establishment of a
No provision.
No provision.
Section 705(b). For
FY2004
and
caseload stabilization pool
subsequent fiscal years, establishes a
caseload stabilization pool to provide
certain states with additional SCHIP
funding. Any remaining unused
redistributed dollars beginning with the
FY1998 appropriation not spent by the
applicable deadlines would become a
part of this pool. In addition, unspent
money in the pool would remain in the
pool. For a given fiscal year, states
eligible for these funds are those whose
total cumulative spending through the
end of the previous fiscal year
exceeded their cumulative original
allotments for the same time period.
For this purpose cumulative spending
means all SCHIP expenditures since the
beginning of the program. These states
would receive an amount from the
caseload stabilization pool equal to the
ratio of such state’s original allotment
(for the previous fiscal year) to the total
original allotments of all eligible states
(for the same prior fiscal year),
multiplied by the total dollars available
in this pool.

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CRS-13
Provisions
Current Law
H.R. 4954
S. 3018
SCHIP allotments: Authority for
No provision.
No provision.
Section 705(c). For FY2003 and
qualifying states to use a portion of
beyond, allows “qualifying states” to
S C H I P f u n d s f o r M e d i c a i d
use up to 20% of their original SCHIP
expenditures
allotment (for that fiscal year) for
certain Medicaid medical assistance
payments. Qualifying states would be
eligible to use, from their SCHIP
allotment, an amount equal to the
difference between spending at the
enhanced SCHIP matching rate and the
FMAP for children up to age 19 with
family incomes greater than 150% of
the FPL.
For a given fiscal year, “qualifying
states” would include those who: (1) as
of March 31, 1997, had a Medicaid
income eligibility standard for at least
one category of children (excluding
infants) of at least 185% FPL; (2) as of
January 1, 2001, had a SCHIP
eligibility standard of at least 200%
FPL; (3) did not impose waiting lists or
enrollment caps for children whose
family income is at least 200% FPL;
(4) provide statewide SCHIP coverage
to all children who meet such state’s
eligibility requirements; and (5) have
implemented at least four additional
specified procedures for establishing
children’s eligibility for their Medicaid
and SCHIP programs.

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CRS-14
Provisions
Current Law
H.R. 4954
S. 3018
SCHIP allotments: GAO study and
No provision.
No provision.
Section 705(d). Requires the General
report regarding expenditure of SCHIP
Accounting Office (GAO) to conduct a
allotments
study on the expenditure of state
SCHIP allotments and to submit to
Congress an interim report no later than
October 1, 2004 with the final report
due no later than October 1, 2005. The
study would examine why certain states
did not use all their SCHIP allotments
(for each of fiscal years 1998, 1999,
and 2000) by the applicable 3-year
deadline. GAO would be required to
evaluate the methods applied to
reallocate unused original allotments,
the caseload stabilization pool, the
adequacy of SCHIP funding and
resources, and potential benefits and
problems associated with the new
redistribution method established by
the caseload stabilization pool. In
addition, the report would include
recommendations for changes in
legislative action regarding expenditure
of SCHIP allotments and methods for
reallocation of unused original
allotments.

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CRS-15
Provisions
Current Law
H.R. 4954
S. 3018
Improvement of the process for the
Section 1115 of the Social Security Act
No provision.
Section 706. Places on both states and
development and implementation of
provides the Secretary of HHS with
the Secretary certain public notice and
Medicaid and SCHIP Waivers
broad authority to conduct research and
hearing requirements, and requirements
demonstration projects under six
regarding receipt and consideration of
programs, including Medicaid and
public comments in the waiver
SCHIP. The Secretary may waive
development, review and approval
provisions in Section 1902 of Medicaid
process. The Secretary must determine
statute (usually freedom of provider
that a waiver proposal is based on a
choice, comparability of benefits, and
sound hypothesis and an appropriate
statewideness). The costs of such
method for evaluation. Any
waivers are allowable expenditures
requirement under Medicaid or SCHIP,
under the applicable program. For
or any related regulation that is not
SCHIP, no specific sections or
explicitly waived and publicly
requirements are cited as “waive-able.”
identified by the Secretary when a
SCHIP statute simply states that
proposal is approved would not be
Section 1115, pertaining to research
waived; similarly, waiver costs not
and demonstration projects, applies to
explicitly identified as allowable must
SCHIP. BBA-97 provided a
not be paid under Medicaid or SCHIP.
mechanism for a 3-year extension of
Clarifies that: (1) the waiver of a
Medicaid statewide comprehensive
specific section under a given title must
1115 waiver projects. Under BIPA-
promote the objectives of that title, (2)
2000, a process was defined for
the Secretary may not waive
receiving extensions of Medicaid 1115
requirements under Medicaid’s early
waivers for those projects receiving the
and periodic screening, diagnostic and
initial 3-year extension.
treatment program, and (3) the
Secretary may not approve any
Regulations describe HHS procedures
proposal that would use SCHIP funds
for review and approval of Section
for health benefits for childless adults
1115 waivers and requirements for
(excluding caretaker relatives).
states with respect to public notification
Effective as of the date of enactment of
a n d i nvo l v ement during th e
this Act, and applies to new proposals
development phase of proposed waiver
and amendments to approved projects,
projects. Those requirements were
that are approved or extended on or
elaborated and amended in a letter to
after the date of enactment.
state Medicaid directors issued May 3,
2002.
Temporary State Fiscal Relief
The federal share of
the
cost
of
No provision.
Section 707. FMAPs for the states and
Medicaid items and services is equal to
territories would be temporarily
the federal medical assistance
increased for FY2003. First, states and
percentage (FMAP) multiplied by those
territories whose FY2003 FMAP is

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CRS-16
Provisions
Current Law
H.R. 4954
S. 3018
costs. Determined annually, the FMAP
lower than their FY2002 FMAP would
is designed so that the federal
retain the FY2002 FMAP (the higher
government pays a larger portion of
rate) for FY2003. Then, the FMAP for
Medicaid costs in states with lower per
each state and territory would be
capita income relative to the national
increased by 1.3 percentage points for
average (and vice versa for states with
FY2003. The spending caps for the
higher per capita incomes). FMAPs for
territories would also be increased by
the states must not fall below 50% and
2.6%. The increases in the FMAP
may not exceed 83%. FMAPs for the
would not apply to disproportionate
territories are statutorily set at 50%. In
share hospital payments or for
the territories, Medicaid programs are
payments for programs under Title IV
also subject to spending caps and
or Title XXI (SCHIP) of the Social
therefore the federal government pays
Security Act. Only states and
50% of the cost of Medicaid items and
territories that maintain Medicaid
services up to the spending caps.
eligibility levels as of January 1, 2002
(or reinstate eligibility levels as of
Authorized under Title XX of the
January 1, 2002) are eligible for the
Social Security Act, the Social Services
FMAP increase.
Block Grant (SSBG) is a flexible
source of funds that states may use to
Appropriates $1 billion in additional
support a wide variety of social
temporary grants under SSBG. The
services activities. Payments to states
grant allotments for each state and
from SSBG funds for any fiscal year
territory are specified and these funds
must be expended by the state in such
may be used for services directed at the
fiscal year or in the succeeding fiscal
goals set forth in the SSBG program.
year. The FY2003 Labor-HHS
These additional SSBG funds would be
appropriation bill (H.R. 5320;
available for obligation through June
introduced but not yet reported)
30, 2003 and for expenditure through
includes $1.7 billion for the SSBG in
September 30, 2003.
FY2003.

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CRS-17
Other Provisions
Provisions
Current Law
H.R. 4954
S. 3018
Increase in appropriations for special
BBA-97 amended Title III of the
No provision.
Section 801. Funds each
grant
diabetes programs for type I diabetes
Public Health Service Act to create two
program at $125 million per year for
and Indians
diabetes grant programs; one targets
FY2004 and FY2005. In addition, the
diabetes research and the other
due date on the final evaluation report
supports diabetes prevention and
for both programs would be extended
treatment services for Indians. Each
to January 1, 2005.
program received $30 million for each
of FY1998 through FY2002,
transferred from SCHIP (Title XXI of
the Social Security Act). Under BIPA-
2000, for each grant program, total
funding was increased to $100 million
per year for FY2001 through FY2003.
For FY2001 and FY2002, the
additional $70 million was drawn from
the Treasury. For FY2003, the entire
$100 million is to come from the
Treasury. Also, the due date on the
final evaluation report for these two
grant programs was extended from
January 1, 2002 to January 1, 2003.
Disregard of certain payments under
Federal programs such as the west
No provision.
Section 802. Specifies that payments
the Emergency Supplemental Act 2000,
coast groundfish fishery provide
made to an individual with respect to
in the administration of federal
payments to individuals to buy out
west coast groundfish fishery would
programs and federally assisted
their vessels (i.e., boats, fishing
not be counted as income or resources
programs
licenses) thereby eliminating their
for purposes of determining the
capacity to harvest fish. The goal of
eligibility or the amount or extent of
these payments is to reduce the overall
benefits or assistance under any federal
burden on the fishing industry to
program.
ensure the economic stability of
remaining vessels.

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CRS-18
Provisions
Current Law
H.R. 4954
S. 3018
Safety Net Organizations and Patient
No provision.
No provision.
Section 803. Would establish a Safety
Advisory Committee
Net Organization and Patient Advisory
Commission to review the nation’s
health care safety net programs by:
documenting and analyzing the impact
of program and federal law changes on
the capacity of the safety net;
monitoring and linking existing data
sources to track changes; supporting
the development of new data systems
and studying safety net failures;
monitoring and providing oversight for
transitions of individuals receiving SSI,
Medicaid or SCHIP who enroll with
managed care entities; and identifying
and disseminating best practices.
Identifies composition and the methods
for appointing members, as well as
operating and reporting requirements.
Publication guidance regarding
In August, 2000, the Office of Civil
Section 624. The Secretary would be
Section 804. Same as H.R. 4954
discrimination by national origin
Rights in the Department of Health and
required to issue final written guidance
except in addition to Medicare, the
Human Services (HHS) issued policy
by January 1, 2003 concerning the
g u i d a n c e wo u l d p e r t a i n t o
guidance that clarified the prohibition
application of the prohibition against
requirements to insure access to
against national origin discrimination
discrimination on the basis of national
covered health services under Medicaid
as it effects persons with limited
origin established by the Civil Rights
and SCHIP for persons with limited
English proficiency. Providers were
Act of 1964. The guidance would
proficiency in English.
instructed in methods, programs, and
pertain to requirements to insure access
requirements that would avoid
to Medicare covered health services for
discrimination and would insure that
persons with limited proficiency in
patients with limited English skills
English.
receive necessary language assistance
that would permit meaningful access to
health services, free of charge.
Although public comments were
solicited, the guidance was effective
immediately.

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CRS-19
Provisions
Current Law
H.R. 4954
S. 3018
Federal reimbursement of emergency
State Medicaid programs are required
No provision.
Section 805. Would provide
an
health services furnished to
to cover emergency services furnished
appropriation for the emergency health
undocumented aliens
to undocumented aliens who otherwise
services grant program of $48 million
meet Medicaid eligibility standards.
per year for FY2003 and FY2004.
Some states, especially border states,
say they bear a disproportionate burden
For each fiscal year, $32 million of the
for this type of cost. To help defray
total appropriation will be distributed
the costs of emergency services to
to the 17 states with the highest
undocumented aliens, BBA-97 made
number of undocumented aliens. For
$25 million available for grants to the
each year, the Secretary would
12 states with the highest number of
compute allotments and calculate
undocumented aliens for each of
counts of undocumented aliens in the
FY1998-FY2001. (No such provision
same manner as defined under current
was made for FY 2002.) For each
law.
year, the Secretary would compute
allotments based on a state’s share of
For each fiscal year, $16 million of the
undocumented aliens relative to the
total appropriation will be distributed
undocumented aliens in all states.
to the six states with the highest
Numbers of undocumented aliens
number of undocumented alien
would be based on estimates prepared
apprehensions for such fiscal year. For
by the Statistics Division of the
each year, the Secretary would
Immigration and Naturalization
compute allotments for such states
Services as of October 1992.
based on a state’s share of
undocumented alien apprehensions
relative to the undocumented alien
apprehensions in all such states.
Numbers of undocumented alien
apprehensions would be based on the
f o u r mo s t r e c e n t q u a r t e r l y
apprehension rates for undocumented
aliens as reported by the Immigration
and Naturalization Service.
Grants will be available to states for
payment to local governments,
hospitals, or other providers for 2 fiscal
years.

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