The Centers for Medicare and Medicaid Services (CMS) unlawfully bypassed congressional review when it issued a directive to states in August alerting them that federal authorities would seek to restrict raising the income eligibility level for the program, the Government Accountability Office (GAO) concluded in a report issued Thursday.

“Both GAO and CRS have now confirmed what so many of us have known for some time, that the administration clearly overstepped its legal authority in issuing the Aug. 17 letter,” said Sen. Jay Rockefeller (D-W.Va.), who requested the GAO report along with Sen. Olympia Snowe (R-Maine).

Lawmakers have introduced bills to rescind the directive, but Rockefeller and Snowe called for the administration to voluntarily withdraw it.

The administration has repeatedly asserted that it is acting within its authority to manage SCHIP and the federal dollars allocated to the program.

Several states are suing the federal government over the directive, making similar claims that it was unlawfully put in place. Within weeks of CMS adopting the policies, one state, New York, had its application rejected to expand SCHIP to children of families with incomes above 400 percent of the federal poverty level.

Last August, as Congress and the White House butted heads over Democratic plans to substantially expand SCHIP, a CMS official sent a letter to state authorities laying out the Bush administration’s new standards for approving expansions of SCHIP, a program for low-income children that is administered by states and jointly funded with the federal government.

The chief tenet of the directive is that CMS would deny any application to expand enrollment to children of families with incomes exceeding 250 percent of the federal poverty level unless that state could certify it had already signed up at least 95 percent of children living in households with incomes below 200 percent of poverty.

State authorities, echoed by congressional Democrats, assert this threshold is nearly impossible to meet, though the administration disputes this.

The GAO report specifically states that the SCHIP directive violates the Congressional Review Act because it makes significant changes to present and future policies without being subject to public comment or Congress.

“The Aug. 17 letter from CMS to state health officials is a statement of general applicability and future effect designed to implement, interpret or prescribe law or policy with regard to the SCHIP program. Accordingly, it is a rule under the Congressional Review Act,” the GAO report says.

CMS stood behind its policy but declined to elaborate on its legal rationale.

“We cannot comment on legal issues regarding the August 17, 2007 State Health Officials (SHO) letter inasmuch as the department is a party to two separate lawsuits generally challenging the SHO letter, and, is also conducting an administrative hearing on reconsidering the disapproval of a New York State Medicaid plan amendment that involves the SHO letter review strategy. GAO’s opinion does not change the department’s conclusion that the 8/17 letter is still in effect,” spokesman Jeff Nelligan said in a statement.

Moreover, the agency said it is cooperating with state efforts to meet the 90 percent threshold for children in families with incomes below 200 percent of the poverty level. According to CMS, more than half of the states they’ve contacted expect to satisfy that requirement.