On April 17, the U.S. Government Accountability Office (GAO) submitted a report to Senators John Rockefeller (D-WVA) and Olympia Snowe (R-ME) that determined the rulemaking status of the Centers for Medicare & Medicaid Services (CMS)' August 17 "Dear State Health Official Letter." The August 17 letter purportedly "clarified" how the agency reviews state requests to expand State Children's Health Insurance Program (SCHIP) eligibility to children in families with incomes above 250 percent of the federal poverty level (FPL).

The August 17 letter announced that CMS would no longer allow states to cover children with gross incomes above 250 percent of FPL, unless a state could demonstrate that it was already covering at least 95 percent of all children eligible for Medicaid and SCHIP with incomes below 200 percent of FPL. No state has yet been able to achieve this level of coverage. Ostensibly to prevent individuals from substituting SCHIP coverage for private health insurance (so-called "crowd-out"), CMS mandated a one-year period of non-insurance before a child could be covered by SCHIP, and a showing that private employer sponsored insurance in the state has not declined by more than 2 percent over a five year period. Some states viewed the CMS letter as an illegal attack on their SCHIP programs instead of a "clarification" of existing policy, especially since states were not afforded the opportunity to submit comments on the pronouncement.

GAO ultimately determined that the August 17 CMS directive to state health officials is a rule subject to the Congressional Review Act, since it is "designed to implement, interpret, or prescribe law or policy with regard to SCHIP." As a result, GAO maintained that the Act requires the directive to first be submitted to both houses of Congress and the GAO Comptroller General before it can be considered legally effective.

The Congressional Research Service (CRS) had reached a similar conclusion in January 2008, in a memorandum to Senator Rockefeller. The CRS opinion indicated that the Congressional Review Act and its legislative history, as well as subsequent court decisions, broadly define an agency rule and concluded that the August 17 CMS directive is an agency action that cannot be effectuated until it is subjected to the review of Congress and the Comptroller General.