You may take these 2 steps in any order. However, if you have Medicare and receive Medicaid coverage, are enrolled in a Medicare Savings Program within your State, or receive Supplemental Security Income (SSI), you will be deemed eligible for the subsidy effective with the first month you meet any one of these conditions; and you do not need to file a subsidy application.

Certain individuals with both Medicare and Medicaid, with Medicare Savings Programs, or with Medicare and receiving SSI payments but who have not enrolled in a prescription drug plan, will be able to take advantage of special enrollment processes. The special enrollment processes are discussed in the preamble to CMS' final rules published January 28, 2005 at 70 FR 42054209 and in CMS's regulations at 42 CFR 423.34.

How To Become Eligible for a Subsidy

Section 1860D14 of the Act requires us to take applications for subsidies from individuals who are applying for Medicare Part D prescription drug coverage. These final rules describe the requirements you must meet to become eligible for a subsidy and what conditions will prevent you from receiving a subsidy. Criteria for eligibility include:

Conditions that could prevent you from receiving a subsidy include:

These final rules also tell you that if we made the original determination of subsidy eligibility, we will periodically review your subsidy eligibility to make sure that you are still eligible for a subsidy and to determine whether you should receive a full or partial subsidy. The amount of subsidies for Part D premiums, deductibles, and copayments will be based on the amount of your income and resources (and those of your spouse, if applicable) and your family size.

Section 1860D14(a)(3)(B)(ii) of the Act specifies that initial subsidy determinations will remain in effect for a period to be determined by the Secretary of Health and Human Services (HHS) but not to exceed 1 year. Section 1860D14(a)(3)(B)(iv) provides that we shall conduct redeterminations periodically. We interpret these provisions together as envisioning prospective determinations that remain unchanged until we conduct the next redetermination of eligibility. To comply with the 1year limitation in section 1860D14(a)(3)(B)(ii), we will conduct the first redetermination within 12 months of our determination that you are eligible for a subsidy.

However, we recognize that certain life events could have a significant impact on your income, resources or family size which in turn could impact your eligibility for a subsidy or the amount of your subsidy. Therefore, these final rules contain an exception to the general rule that a determination remains in effect until we conduct the next redetermination.

Under that exception, if you are a subsidyeligible individual and your income, resources or family size changes because of marriage, divorce, annulment, separation, resumption of members of a couple living together, or the death of your spouse, you may ask us to redetermine your subsidy based on your new circumstances. When you report such a change or we receive such a report from another source, we will send you a redetermination form. You must complete the form and return it to us so that we can redetermine your subsidy. The redetermined subsidy, if any, will be effective with the month after the month you request us to redetermine your subsidy. We will process other changes, such as the loss of a job, which you would report, in conjunction with your next redetermination.

Eligibility and Applying for a Subsidy

Attaining eligibility for the subsidy under Medicare Part D is a twostep process. You must:

You may take either step first, but the subsidy will not begin until you are enrolled in a Medicare Part D plan or Medicare Advantage plan with prescription drug coverage. If you file your application for the subsidy before the month you are enrolled in a Medicare Part D plan or Medicare Advantage plan with prescription drug coverage, the earliest month you can receive the subsidy is the month you are enrolled in such a plan.

These final rules apply when you file for a Medicare Part D subsidy with us. As a condition of eligibility for the subsidy, section 1860D 14(a)(3) of the Act requires that you, or your personal representative (as defined in 42 CFR 423.772), file an application with us or a State office that accepts Medicaid applications. Our application may be printed in paper form, completed by our employees on computer screens, or available on our Internet Web site, Social Security Online at http://www.socialsecurity.gov .

When you file an application we will determine your eligibility and provide you with appeal rights. If we find that you are eligible for the subsidy, we will also determine whether you should receive a full or partial subsidy. Timely filing also assures that you can receive the subsidy for any months you are eligible. If you inquire orally or in writing about the subsidy and tell us you want to file a subsidy application, or if you partially complete the subsidy application on our Internet Web site, we will use the date of your inquiry or the date we receive a partially completed Internet subsidy application from our Web site as your filing date for the subsidy if the requirements in Sec. 418.3230 are met.

Your application for the subsidy remains in effect until we make a final determination on it. As stated in Sec. 418.3620, our initial determination is binding unless you request an appeal within the time period stated in Sec. 418.3630(a) and our decision on the appeal is binding unless you file an action in Federal district court seeking review of our final decision (see Sec. 418.3675). If you timely file an appeal of our initial determination, your application for the subsidy remains in effect until we make a decision on your appeal. If you are not enrolled in a Medicare Part D plan or Medicare Advantage plan with prescription drug coverage when you file your subsidy application, we will write and tell you about your eligibility for the subsidy and that you must be enrolled in such a plan in order to receive a subsidy.

How We Evaluate Your Income

Section 1860D14(a)(1)(3) of the Act establishes income limits for eligibility for the Medicare Part D subsidy. Therefore, we will require you to provide information about the income you receive. If you are married and living with your spouse, we will also require you to provide information about your spouse's income. These final rules explain what we consider income, what we exclude from income counting, and how we will compute the amount of an individual's countable income.

We will count both earned income and unearned income. Earned income consists of wages and net earnings from selfemployment. Unearned income is any income that is not wages or net earnings from self employment. Unearned income includes Social Security benefits, Veterans benefits, public and private pensions, annuities, and any support and maintenance provided to you.

We will not count all of the money you receive when we determine your eligibility for the subsidy. We will apply certain exclusions to income you receive when we determine countable income. As directed by the new legislation, these exclusions are modeled after the exclusions used in the SSI program. For example, we will exclude up to $20 per month ($240 per year) of your income. In addition, we will exclude from unearned income the first $60 per calendar quarter of income that is irregular or infrequent; e.g., cash received as a birthday gift, and the first $30 per calendar quarter of earned income that is irregular or infrequent.
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We will also exclude all interest and dividends.

We will exclude up to $65 per month ($780 per year) and onehalf of the remainder of your earned income (or your and your spouse's combined earned income). We also will exclude a portion of earned income if you are disabled under Social Security rules and have expenses related to your impairment that you must pay in order for you to work. We call these expenses impairmentrelated work expenses. Similarly, we will exclude a portion of your earned income if you are blind under Social Security rules and have expenses that must be paid in order for you to work. We will apply these exclusions based on these percentages in lieu of determining the actual work related expense in each case. The amount we exclude will be equal to the average percentage of gross earnings excluded for SSI recipients who have such expenses. Initially, the exclusion for impairmentrelated work expenses will be 16.3 percent of the gross earnings; the exclusion for blind work expenses will be 25 percent of the gross earnings. However, if you have expenses that exceed the average, we will give you the opportunity to present evidence of your actual expenses and adjust the amount of earned income excluded accordingly. We may adjust the percentages if the average percentage of gross earnings excluded for SSI recipients with disability related or blind work expenses changes. If we make such a change we will publish a notice in the Federal Register.

How We Evaluate Your Resources

Section 1860D14(a)(3)(D) of the Act establishes resource limits for eligibility for the Medicare Part D subsidy. Therefore, we will require you to provide information about your resources. If you are married and living with your spouse we also will require you to provide information about your spouse's resources. These final rules explain what resources we will count and what resources we will not count; i.e., exclude from counting. As directed by the legislation, the resource exclusions are modeled after the resource exclusions in the SSI program.

We will count liquid resources, which are cash, financial accounts, financial instruments, and other property that can be converted to cash within 20 workdays. Liquid resources can include stocks, bonds, mutual fund shares, insurance policies, and financial institution accounts, including checking and savings accounts or retirement accounts, such as individual retirement accounts and 401(k) accounts, revocable trusts, and funds in an irrevocable trust if the individual can direct the use of those funds. We will presume that these types of resources can be converted to cash within 20 workdays and are countable. However, if the individual establishes that a particular resource cannot be converted to cash within 20 workdays, we will not count it as a resource in the subsidy determination. We also will count the equity value of real property that you own except for the home that is your principal place of residence and the land it resides on. We will not count other nonliquid resources such as motor vehicles and irrevocable trusts. Verification

We will compare the information you provide on your application to information in our records and information we obtain from other Federal agencies. If necessary, we will contact you to reconcile any discrepancies between the information on your application and the information from the Federal agencies. We may ask you to submit documents, such as bank statements, to resolve discrepancies. Changes in Your Subsidy

Section 1860D14(a)(3)(B)(iv) of the Act requires us to redetermine your continuing subsidy eligibility periodically. During those redeterminations, we will reevaluate your income and resources to see if you continue to be eligible for a subsidy. If you are still eligible there may be an increase or decrease in the amount of your subsidy. These final rules explain how we will make adjustments to or terminate subsidies as a result of periodic redeterminations or redeterminations based on reports of death, marriage, divorce, annulment, separation, or resumption of living together. Any determinations made as a result of changes in your circumstances will be a new initial determination, and we will notify you of the determination in writing and explain your right to appeal that determination.

If You Disagree With Our Determination of Your Subsidy

Section 1860D14(a)(3)(B)(iv)(II) of the Act requires us to establish appeal procedures for subsidy eligibility determinations similar to the appeal procedure for the SSI program. The procedures in these final rules will apply only if we, not a State Medicaid agency, make the initial determination. If CMS determines that you no longer meet deemed status because you are no longer eligible for SSI (and CMS determines you are not eligible for Medicaid or the Medicare Savings Program), CMS may refer you to us about your SSI eligibility.

We have a process for you to appeal our eligibility determination on your subsidy application, and our determinations of whether you can receive a full or partial subsidy, of an adjustment to your subsidy, or of a termination of your subsidy eligibility. We also explain the rights of your spouse whose eligibility could be adversely affected by your appeal. In these final rules, the term ``the appeal process,'' means the same as ``the administrative review process,'' and we use these terms interchangeably throughout.

The administrative review process will provide you one level of administrative review. Under these final rules, if you decide you want to appeal, you may choose between either a hearing via telephone or a case review. Both the telephone hearing and the case review are at the same level of the appeals process. You will have an opportunity to review the information we use in making a decision and to give us more information that you may want us to consider. You can also have witnesses at your hearing if you choose.

In addition, you can have a personal representative help you with your appeal or represent you. We will work with your representative just as we would work with you. CMS regulations (42 CFR 423.772), which we will apply here, define a personal representative as:

You must contact us within 60 days of the date you receive notice of the initial determination to ask for an appeal of your subsidy determination. If you miss the deadline for requesting an appeal, you can request more time if you can show us you have good cause for missing the deadline. Once we make a decision on your appeal, we will send you a written notice explaining our decision. If you are dissatisfied with our final decision, you may file an action in Federal district court. As we explain in Sec. 418.3670, if we dismiss your appeal, we will mail a written notice of the dismissal to you, but the dismissal is not subject to judicial review and is binding on you unless we vacate it.

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The issues that we will review are the issues with which you disagree. We may consider other issues, but we will provide you with advance notice of these other issues, as explained in Sec. 418.3625.

We may correct clerical errors if discovered within 60 days of the date of our initial determination. We will notify you of our revised determination as explained in Sec. 418.3678.

Explanation of Part 418

Part 418 consists of four subparts. We are reserving subparts AC for future use. We are adding a new subpart D, Medicare Part D Subsidies, which contains the rules that we use to make determinations and decisions about eligibility for the subsidy.

Following is a description of each section for subpart D. Introduction, General Provisions, and Definitions

Public Comments

On March 4, 2005, we published proposed rules in the Federal Register at 70 FR 10558 and provided a 60day period for interested persons to comment. We received comments from 22 organizations and one individual. Because some of the comments received were quite detailed, we have condensed, summarized or paraphrased them in the following discussion. We have tried to present all views adequately and carefully address all of the issues raised by the commenters that are within the scope of the proposed rules.

Introduction, General Provisions and Definitions

Comment: One commenter recommended that we revise the proposed rules to provide guidance to States on how to verify income and resources, and how to process redeterminations and appeals.

Response: As noted in the preamble to the proposed rules, these rules only address our processing of applications, redeterminations and appeals. We have no authority to regulate the States in this area. CMS oversees the State's participation in this program and issued its own rules that the States are expected to follow on January 28, 2005 (70 FR 4193). CMS also issued additional guidance to the States in a document dated May 25, 2005. This guidance is available on CMS' Web site at http://www.cms.hhs.gov/States/03_lowincomesubsidy.asp.

Comment: Six commenters suggested that the final rules include time limits within which we must process applications, redeterminations, and appeals.

Response: We have designed a largely automated process to ensure timely processing of applications, redeterminations and appeals. We intend to complete all actions as quickly as possible. We expect that most applications and redeterminations will be processed expeditiously. However, there are several aspects of the process that make it impossible to guarantee a specific processing time. For example, if information reported on the application conflicts with information obtained from other Federal agencies regarding an applicant's income or resources, we will need to contact the applicant to reconcile the discrepancy, which might increase the time needed to process the application. We also expect to receive some applications that have not been fully completed that will require additional time to complete before processing. Furthermore, because this is a new program, it is difficult to anticipate the volumes of applications, redeterminations, or appeals that we will receive. The volume of receipts could impact the processing time and make it inappropriate to set specific time limits for acting on an appeal. Lastly, the legislation imposes no such time limits, and we do not believe it advisable for us to do so.

In evaluating this comment and reviewing the relevant proposed rules, we detected an inadvertent error in Sec. 418.3225(c). That section stated that individuals who applied for the subsidy but were not yet entitled to Medicare Part A or enrolled in Medicare Part B would receive a letter explaining their eligibility for the subsidy provided they become so entitled and/or enrolled. However, because entitlement to Medicare Part A or enrollment in Medicare Part B is a criterion for eligibility for a subsidy (in addition to enrollment in a Part D plan), we will not be able to make a subsidy eligibility determination in the absence of entitlement to or enrollment in Medicare Part A or Part B. (The CMS regulations at 42 CFR 423.774 permit a subsidy eligibility determination to be made for Medicare beneficiaries not yet enrolled in a prescription drug plan, but they do not provide similar authority regarding individuals who do not yet have Medicare coverage.) Therefore, we are revising Sec. 418.3225(c) to state that if you apply for the subsidy before you are entitled to Medicare Part A and/or enrolled in Medicare Part B but you appear to be in an enrollment period, the notice we send will advise you that we will not take any action on your application until you become entitled to Medicare Part A and/or enrolled in Medicare Part B. If you do not appear to be in an enrollment period, the notice will advise you that you are not eligible for the subsidy because you are not entitled to Medicare Part A or enrolled in Medicare Part B. This letter will also explain your appeal rights.

Comment: One commenter stated that the Notice of Termination should be sent 30 days prior to the termination date.

Response: The MMA instructed us to establish a simplified program. In keeping with the directive, we are following notice guidelines used in other programs that we administer. As a result, the Notice of Termination explains that the beneficiary will receive continuation of their subsidy if he or she appeals within 10 days, and further explains that the beneficiary has 60 days to appeal. Additionally, the beneficiary can request good cause for late filing of an appeal if he/ she fails to meet the 10 and 60day deadlines.

Comment: One commenter suggested that the regulations should include a provision requiring us to issue all notices in alternate language formats upon claimant request.

Response: Although this is a valid concern that warrants further consideration, we have not adopted this comment. The only alternate language format for notices we are currently able to offer is Spanish; however, this is not available to Railroad Retirement beneficiaries because we do not have a record of their preference for a Spanish notice. We will investigate expanding
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our ability to offer other alternate language formats in the future.

Comment: One commenter stated that we should hire enough staff to handle the new workload.

Response: This comment is not within the scope of these rules. However, we have put a great deal of effort into determining the amount of staff that will be needed, as well as the hiring and training of the additional staff.

Eligibility for a Medicare Prescription Drug Subsidy

Comment: Nine commenters said that the rules should state that the lowincome subsidy shall not negatively affect the eligibility of any recipient for other Federal benefits programs.

Response: Since the Act does not address the effect of the subsidy on other Federal programs or provide a specific exclusion, and since we have no authority to instruct other agencies, this recommendation is beyond the scope of these rules. However, CMS has prepared several fact sheets explaining the impact of the subsidy on various Federal programs. Those fact sheets are available at CMS' Web site, http://www.Medicare.gov. In evaluating this comment, we noticed that our proposed rules were not sufficiently clear about how income excluded by other Federal programs would be treated for purposes of determining eligibility for the subsidy. Therefore, we are revising Sec. 418.3350(b), by adding a reference to Sec. 416.1124(b) of our rules to clarify that income, excluded by the SSI program because it is excluded under other Federal statutes, will also be excluded for purposes of determining eligibility for the subsidy.

Comment: Nine commenters suggested that we add explicit language to explain when eligibility is effective for beneficiaries with deemed eligibility status.

Response: We agree with this comment and have revised Sec. 418.3105 to clarify that if beneficiaries have deemed eligibility status because they receive Medicaid coverage, are enrolled in a Medicare Savings Program within their State, or receive SSI and have Medicare, then their subsidy is effective with the first month they have deemed eligibility status.

Comment: Nine commenters said that the rules should include a procedure to screen applicants for eligibility for Medicare Savings Programs.

Response: We believe that this is a procedural matter that does not require us to revise our rules. However, our operating guides include instructions on screening for these cases.

Comment: Nine commenters said that we should adopt a policy of continuous eligibility where beneficiaries retain eligibility for a full 12 months, regardless of any income changes.

Response: Following the guidelines in CMS regulations at 42 CFR 423.780, we will determine eligibility and subsidy percentage for a calendar year. CMS will make the subsidy amount determination. These determinations will remain in effect throughout the year, unless a beneficiary reports a subsidychanging event described in Sec. 418.3120(a) or the beneficiary becomes deemed eligible for a full subsidy.

Comment: Two commenters said that we should use data exchange information to determine if beneficiaries qualify for a more generous subsidy.

Response: The rules state at Sec. 418.3120(b)(1) that we will use information we receive from the beneficiary or from data exchanges with Federal agencies to determine the correct subsidy amount. Depending on the new information we receive, the subsidy may increase, decrease, or remain unchanged. Except as provided in Sec. 418.3120(a), we will use any income or resource information obtained via data exchange when we determine a person's continuing eligibility for the next calendar year.

Comment: One commenter said that we should specify a time frame for enrollment in a Medicare Advantage plan.

Response: Medicare Advantage plans and enrollment rules fall under the jurisdiction of HHS and CMS. Therefore, we do not have the authority to implement rules governing Medicare Advantage plans.

Comment: One commenter said that we should develop processes to advise applicants whose application for the subsidy has been denied that they might qualify for Medicaid or a Medicare Savings Program.

Response: We are aware of the importance of making referrals to other programs. Our notices will advise all applicants of their potential eligibility for a Medicare Savings Program.

Comment: One commenter said that late enrollment penalties should not be assessed for individuals who have their applications denied when they are not enrolled in a plan but later have their claims allowed.

Response: The policies for late enrollment penalties are under the control of CMS. Therefore, we are not authorized to implement policies governing late enrollment penalties.

Comment: Three commenters asked that we provide greater detail in the regulations about how we will conduct redeterminations of subsidy eligibility. They suggested that we adopt a ``passive'' redetermination process, in which we advise the beneficiary about the information we have, and the beneficiary is only required to respond if the information is inaccurate. They suggested that we limit the number of times we will conduct a redetermination in a given period. The commenters explain that this would enable a simple redetermination process that would not be a burden on us or on beneficiaries.

Response: We agree that the redetermination process should be simple and should not be burdensome. For these reasons, we plan to use a ``passive'' redetermination process for a beneficiary's first scheduled redetermination. Further, we do not plan to conduct a redetermination for every beneficiary every year, but will instead schedule redeterminations based on the likelihood that an individual's situation may change. We expect this process to fulfill our responsibility to maintain the integrity and accuracy of the subsidy program, while minimizing burdens placed on us and on beneficiaries. However, without further experience we cannot commit ourselves to the ``passive'' redetermination process or any particular redetermination frequency, and therefore we are not revising the regulation to address these issues. Experience may tell us that a different process better serves the integrity of the program and interests of beneficiaries. The law gives us broad discretion, which we exercise in these regulations, to determine the procedures for conducting redeterminations. However, based on these comments, we are changing Sec. 418.3110(c) and Sec. 418.3225(b) to eliminate the statement that we will terminate subsidy eligibility if an individual has not yet enrolled in a prescription drug plan at the time of a redetermination. We are making this change because some situations could develop in the future where an individual will be enrolled in a drug plan but the effective date will be later than our redetermination. We plan to monitor our redetermination process in order to determine whether any further changes are warranted.

Comment: Four commenters suggest that changes that would affect the subsidy amount, such as in income, resources, household composition, or enrollment in a Medicare Savings Program, could be reported at any time and should become effective immediately, or a month after the month of the report of the change, rather than delaying the effect. They are concerned about the fact that these changes are not
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effective until the January following the report. They believe this would be disadvantageous for beneficiaries who have a decrease in income or resources, but will continue to receive the same subsidy amount until a redetermination is completed.

Response: Section 418.3110(d)(3) of these final rules clarify that a person who has been denied eligibility for a prescription drug subsidy may reapply any time their situation changes. Individuals already receiving a subsidy may report significant changes at any time. However, in keeping with the direction provided by section 1860D14 of the Act, we established a simplified application form and process for this program. One technique that we adopted to maintain a simplified process was that eligibility determinations will be based on determinations of yearly income and resource amounts. The determination remains in effect for a calendar year unless the beneficiary reports one of the six subsidy changing events listed in the rules, appeals the initial determination, or becomes eligible for a program that would cause deemed eligibility for a full subsidy. This approach ensures that the individuals found eligible for subsidies will have continuous eligibility and will not be impacted by monthly income changes. Also, beneficiaries are not burdened with reporting responsibilities. This comment did alert us to one possible subsidychanging event that we inadvertently omitted, that of a change in household composition due to a separated married couple resuming living together. We have revised Sec. 418.3120 to reflect this change.

Filing of Application

Comment: One commenter said that we should use a term such as ``helper'' as synonymous with ``representative'' and specify that representatives are always allowed to sign an application.

Response: We follow CMS' policy concerning representatives in the Medicare program as defined by CMS' regulations at 42 CFR 423.772. This definition makes it clear, however, that representatives are fully authorized to act on a person's behalf.

Comment: One commenter suggested that we eliminate the penalty clause on the application. Another commenter said that the form should not have been drafted prior to the issuance of these rules and that it should be revised to consider any comments received on these rules.

Response: We published three notices in the Federal Register on July 30, 2004 (69 FR 45879), September 30, 2004 (69 FR 58578) and November 17, 2004 (69 FR 67379). In these notices, we gave the public an opportunity to comment on the application form. We received a number of comments on the form which we evaluated before the final version was approved. None of the comments received on these rules will impact the application. However, we will continue to evaluate and revise the form when changes appear necessary.

Comment: Ten commenters made the following comments about various aspects of the application process:

Response: These comments deal with procedural issues and are not within the scope of these rules. However, we have reviewed the operating instructions and believe they address the concerns raised by the commenters. We will continue to monitor the process and make changes if necessary.

Income

Comment: Five commenters recommended that we revise Sec. 418.3335 to remove inkind support and maintenance from consideration as countable income. They asserted that under MMA, we have the authority to exclude consideration of inkind support and maintenance in making eligibility determinations. Four of the five commenters pointed out that the Medicare Savings Program uses SSI methodology to determine countable income but the model Medicare Savings Program application created by CMS does not include inkind support and maintenance. They further pointed out that it could be difficult for individuals to provide information about household expenses which might discourage potential beneficiaries from filing a claim.

Response: After careful consideration, we decided not to adopt this recommended change. Section 1860D14(a)(3)(C)(i) of the Act provides that income for subsidy eligibility shall be determined in the manner prescribed in section 1905(p)(1)(B) of the Act without regard to the application of section 1902(r)(2). Section 1905(p)(1)(B) of the Act provides that income will be determined under section 1612 of the Act. Section 1902(r)(2) provides the authority for States to use income and resources methodologies for certain groups of Medicaid eligibles that are less strict than those used in the SSI program, but section 1860D 14(a)(3)(C)(i) specifically precludes us from using those less strict rules. Therefore, we must follow the incomecounting requirements of section 1612 which provides that inkind support and maintenance will be counted as income with a maximum value of onethird of the applicable SSI Federal benefit rate, although we have simplified some of the rules consistent with Congress' intent.

Comment: One commenter recommended that we simplify the inkind support and maintenance determination described in Sec. 418.3345 by allowing beneficiaries to use a default dollar value equal to onethird of the SSI Federal benefit rate unless the beneficiary alleges a dollar amount less than the default value.

Response: We do not agree that permitting beneficiaries to use a default dollar value equal to onethird of the SSI Federal benefit rate would simplify inkind support and maintenance determinations. In addition, we are concerned that offering individuals the option of using a default amount could inappropriately encourage individuals to allege the default amount instead of the actual amount which could be lower and, therefore, beneficial to the individual. Section 418.3345(b) of the final rules states that we will count inkind support and maintenance as income only up to onethird of the applicable SSI Federal benefit rate. Section 418.3345(a) of the final rules states that the amount of income derived from inkind support and maintenance is the current market value of the food and shelter provided by other people. When the current market value of the inkind support and maintenance is less than onethird of the applicable Federal benefit rate, only the current market value is counted as income. However, to make this clear in the regulations, we have revised Sec. 418.3345(b) to state that if the current market value of inkind support and maintenance the individual receives is worth less than onethird of the applicable monthly SSI Federal benefit rate, we count only the current market value as income.

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Comment: One commenter stated that the rules in Sec. 418.3345 do not offer a streamlined approach that enables beneficiaries to determine how much, if any, inkind support and maintenance they receive. The commenter recommended that we reduce the amount of the maximum countable inkind support and maintenance to below onethird of the Federal SSI benefit rate. The commenter further recommended that we provide a streamlined methodology for beneficiaries to calculate in kind support and maintenance.

Response: After careful consideration, we decided not to adopt these recommended changes. The authority to count inkind support and maintenance as income is derived from section 1612(a) of the Act. This section provides that the countable income derived from inkind support and maintenance is equal to onethird of the Federal SSI benefit rate. The statute does not provide the authority to establish a lower maximum countable amount. We will count less than the maximum amount as income when the beneficiary receives inkind support and maintenance that is worth less than the maximum. Furthermore, we are providing a streamlined process for determining inkind support and maintenance which requires that the beneficiary answer only one question on the subsidy application. By limiting the application to only one question, we have developed a process that is very streamlined, and is much simpler than the SSI process for determining inkind support and maintenance.

Comment: Nine commenters stated that the Student Earned Income Exclusion (SEIE) should be applied to individuals who apply for the subsidy. In the SSI program, the SEIE applies to individuals under age 22 who are regularly attending school and who have earned income. The SEIE excludes earned income up to a maximum of $5670 (in 2005) per year. The commenters state that this exclusion would permit disabled students to gain work experience without jeopardizing eligibility for the subsidy.

Response: We expect that prescription drug subsidy claims involving individuals who could meet all of the requirements for the student earned income exclusion will be very rare. We are still analyzing the potential impact of the prescription drug subsidy on the disabled student population who have Medicare coverage and will revisit this area in subsequent regulations if appropriate.

Comment: Nine commenters stated that the rules in Sec. 418.3325 should provide an exclusion for earned income received by a Social Security Disability Insurance (SSDI) beneficiary during a trial work period or an unsuccessful work attempt. The same commenters stated that the regulation also should provide an exclusion for earned income of an SSDI beneficiary received as a result of a workrelated subsidy or special condition. Under SSDI rules, a workrelated subsidy exclusion is applied when an individual's earnings exceed the reasonable value of the work performed, and we count only the pay that is actually earned. Under SSDI rules, if work is done under special conditions, we may determine that the work does not show that the individual can perform substantial gainful activity. These commenters also stated that the regulations should permit SSDI beneficiaries to deduct unincurred business expenses when determining countable self employment income. An unincurred business expense occurs when a sponsoring agency or another person pays certain business expenses for the individual who is attempting to work. The commenters stated that not providing these earned income exclusions would be a disincentive for SSDI beneficiaries who might not try working because their earnings could cause them to lose eligibility for the subsidy.

Response: After careful consideration, we decided not to adopt these recommended changes. The earned income exclusions proposed by the commenters pertain only to the SSDI program under title II of the Act. For purposes of determining subsidy eligibility, section 1860D 14(a)(3)(C) of the Act provides that income is determined in the manner described in section 1905(p)(1)(B) of the Act; that is, under the SSI methodology provided in section 1612 of the Act. Section 1612 describes what income is countable and what income is excludable and does not provide for these earned income exclusions.

Comment: Fourteen commenters stated that the rules in Sec. 418.3325(b)(5) and (b)(7) should provide that impairment related work expenses (IRWE) and blind work expenses (BWE) should exclude the average percentage of gross earnings or the actual expenses, whichever is greater.

Response: The rules in Sec. 418.3325(b)(5) and (b)(7) already provide that actual expenses for IRWE and BWE will be used if they are greater than the average percentage of such expenses. If the actual expenses are not greater, then the average percentage will be excluded automatically when the individual indicates on the application that he or she has such expenses.

Comment: One commenter stated that if greater than average IRWEs and BWEs are not automatically considered, a clear procedure and timeline for establishing greater than average IRWEs and BWEs must be established so that beneficiaries are aware that their actual expenses will be considered if higher than the average expenses. The commenter further stated that the rules lack procedural availability or timelines within which SSA must respond to requests to consider actual expenses.

Response: The specific procedures and timeline for determining higher than average IRWE and BWE expenses will not be addressed in the regulations. These are operational issues and not appropriate to include in regulations. However, Sec. 418.3325 clearly states that we will exclude greater than average IRWE or BWE expenses when the individual's actual IRWE or BWE expenses are greater than the average. The notices that we send to beneficiaries will state how much income we are counting and how much income is excluded because of IRWE or BWE. The notices will inform the beneficiaries to contact us if they disagree with our income determination. If a beneficiary contacts us with a question about the IRWE or BWE exclusion amount, we will help the individual to establish the actual amount of IRWE or BWE expenses that should be excluded.

Comment: Four commenters who approved of our decision to use the average percentage for computing IRWE encouraged us to make the process of proving higher than average IRWE as easy for beneficiaries as possible. One of these four commenters recommended that we permit self attestation of higher IRWE to make the process simpler for beneficiaries and for us.

Response: We agree with the commenter that the process for proving higher than average IRWE and BWE should be as easy as possible for beneficiaries. However, we do not believe a change in the regulation is necessary. The procedures we have developed are based on the recognition that determining dollar amounts for IRWE or BWE can be difficult because of the wide variety of expenses that potentially qualify for this exclusion. Therefore, under our procedures our staff will assist beneficiaries establish a higher than average IRWE or BWE exclusion and in obtaining any documentation that might be required to establish a higher than average IRWE or BWE exclusion. We will issue operating
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instructions explaining these procedures.

Comment: One commenter recommended that income deductions should be afforded to individuals who use service dogs or guide dogs and incur expenses related to use of these dogs.

Response: The procedures for determining the exclusion of expenses associated with service dogs or guide dogs are provided in our operating instructions and will not be addressed in these regulations. Our procedures exclude expenses associated with service dogs and guide dogs and all associated expenses under either the IRWE or BWE exclusion if the dogs are needed for employmentrelated activity. To make it clear that BWE exclusions such as guide dogs also apply to subsidy determinations, we are adding a crossreference in Sec. 418.3325(b)(7) that refers to the SSI BWE provision in Sec. 416.1112(c)(8) of our rules.

Comment: One commenter recommended that we clarify the regulations by stating that costofliving increases in Federal benefits are not counted as income until the month following the annual publication of the updated Federal poverty guidelines.

Response: We have clarified Sec. 418.3340(f) of the final rules to state that we will not count the amount of the costofliving adjustment (COLA) for Social Security benefits for any month before the Federal poverty guidelines are published. Section 1905(p)(2)(D)(i) of the Act provides that the income of an individual who is entitled to monthly insurance benefits under title II shall not include any amounts attributable to a COLA for each month through the month following the month in which the annual revision of the Federal poverty guidelines are published. However, the statutory authority to not count the COLA applies only to monthly insurance benefits under title II and not to other Federal benefits. Therefore, we have also revised Sec. 418.3120(a)(7) for consistency.

Resources

Comment: One commenter stated that our description in Sec. 418.3405 of liquid resources as those which can be converted to cash within 20 workdays is ambiguous. The commenter stated that Sec. 418.3405 of the rules should include a finite list of the resources that will be counted and a statement that anything not listed will not be counted.

Response: The purpose of Sec. 418.3405 is to describe the types of financial accounts and instruments that will be counted as resources. Liquid resources are resources that are held in financial accounts or other instruments that can be converted to cash within 20 workdays. We will presume that these types of resources can be converted to cash within 20 workdays and are countable. However, if the individual establishes that a particular resource (other than nonhome real property) cannot be converted to cash within 20 workdays, we will not count it as a resource in the subsidy determination. We refer to ``liquid resources'' in order to differentiate them from ``nonliquid'' resources which, except for equity in nonhome real property, will not be counted for purposes of determining subsidy eligibility (e.g., vehicles, household goods, jewelry, musical instruments, etc.). We are adding language to Sec. 418.3405 to clarify that ``20 days'' means ``20 workdays.'' This is how we described this rule in the preamble of the Notice of Proposed Rulemaking (NPRM) and it was an unintended omission that we did not say ``workdays'' in Sec. 418.3405 in the NPRM.

Based on over 30 years of experience making resource determinations for the SSI program, we are convinced that it is not feasible for us, or beneficial to the individual, to provide a finite list of all countable resources. A list could be developed to include most of the common types of financial instruments, but it would not capture all of the many types of financial instruments in existence now. In addition, new types of financial instruments and investment vehicles are being created regularly and often are given names in order to differentiate them from existing products. It would be very difficult to maintain such a list in our regulations. Using a list could also result in unequal treatment of beneficiaries because we would exclude from resource counting some financial products just because they are not on the list even if they are very similar to financial products on the list that are countable.

To further improve the clarity of what resources are generally considered liquid, we will add the following examples to the list of resources that are ordinarily considered liquid, ``trusts if they are revocable or if the trust beneficiary can direct the use of the funds in the trust.'' We consider a revocable trust to be a liquid resource because it can be converted to cash. Also, if a trust beneficiary can direct the use of the funds in a trust, the funds in the trust are a liquid resource because the beneficiary can use those funds for support and maintenance.

Comment: Two commenters recommended that the cash value of life insurance should not count as a resource because life insurance policies may not be easily convertible to cash and therefore would not meet the definition of liquid assets adopted by CMS in 42 CFR 423.772 which states that liquid resources are resources that can be converted to cash in 20 workdays. The commenters also expressed concern that determining the cash value of life insurance could be difficult for beneficiaries and would slow down the application process and could result in some beneficiaries not filing for the subsidy.

Response: After careful consideration, we decided not to adopt this recommended change. As already discussed in this document, we will presume that a financial instrument such as a life insurance policy can be converted to cash within 20 workdays. If the individual establishes that a particular resource (other than nonhome real property) cannot be converted to cash within 20 workdays, it will not be counted as a resource. Normally, information about the cash value of an insurance policy is readily available to the policy owner, and we have procedures to assist beneficiaries who need help determining the value of their insurance policies.

Comment: One commenter expressed concern that the requirement to provide the cash value of life insurance policies would be a significant burden on beneficiaries. The commenter recommended that SSA should work with insurance companies and organizations to develop a process to help beneficiaries get this information quickly and accurately.

Response: We agree with the commenter that it is important to establish procedures that are not burdensome for beneficiaries. The procedure we have developed provides a flexible approach for beneficiaries to make it as simple as possible to provide us with the correct information. We have issued operating instructions explaining these procedures. In addition, our staff will assist beneficiaries who find it difficult to provide this information. We have also held discussions with representatives of the American Council of Life Insurers and the National Association of Insurance Commissioners to ask for their assistance in notifying insurers about the kind of information we need about an individual's policies and how they can help their clients.

Comment: One commenter recommended that we automatically exclude $1,500 in assets for all beneficiaries under the burial exclusion in Sec. 418.3425(j). The commenter expressed concern that some beneficiaries could be disadvantaged if
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they did not understand the burial exclusion question and answered it incorrectly.

Response: Afte

FOR FURTHER INFORMATION CONTACT

Craig Streett, Team Leader, Office of Income Security Programs, Social Security Administration, 252 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 212356401, 410965 9793 or TTY 18009665906, for information about this Federal Register document. For information on eligibility or filing for benefits, call our national tollfree number, 18007721213 or TTY 18003250778, or visit our Internet site, Social Security Online, at http://www.socialsecurity.gov .