(a) In General- Section 1923(f) of the Social Security Act (42 U.S.C. 1396r-4(f)) is amended--

(1) in paragraph (1), by striking ‘and (3)’ and inserting ‘, (3), and (7)’;

(2) in paragraph (3)(A), by striking ‘paragraph (6)’ and inserting ‘paragraphs (6) and (7)’;

(3) by redesignating paragraph (7) as paragraph (8); and

(4) by inserting after paragraph (6) the following new paragraph:

‘(7) REDUCTION OF STATE DSH ALLOTMENTS ONCE REDUCTION IN UNINSURED THRESHOLD REACHED-

‘(A) IN GENERAL- Subject to subparagraph (E), the DSH allotment for a State for fiscal years beginning with the fiscal year described in subparagraph (C) (with respect to the State), is equal to--

‘(i) in the case of the first fiscal year described in subparagraph (C) with respect to a State, the DSH allotment that would be determined under this subsection for the State for the fiscal year without application of this paragraph (but after the application of subparagraph (D)), reduced by the applicable percentage determined for the State for the fiscal year under subparagraph (B)(i); and

‘(ii) in the case of any subsequent fiscal year with respect to the State, the DSH allotment determined under this paragraph for the State for the preceding fiscal year, reduced by the applicable percentage determined for the State for the fiscal year under subparagraph (B)(ii).

‘(B) APPLICABLE PERCENTAGE- For purposes of subparagraph (A), the applicable percentage for a State for a fiscal year is the following:

‘(i) UNINSURED REDUCTION THRESHOLD FISCAL YEAR- In the case of the first fiscal year described in subparagraph (C) with respect to the State--

‘(I) if the State is a low DSH State described in paragraph (5)(B), the applicable percentage is equal to 25 percent; and

‘(II) if the State is any other State, the applicable percentage is 50 percent.
‘(ii) SUBSEQUENT FISCAL YEARS IN WHICH THE PERCENTAGE OF UNINSURED DECREASES- In the case of any fiscal year after the first fiscal year described in subparagraph (C) with respect to a State, if the Secretary determines on the basis of the most recent American Community Survey of the Bureau of the Census, that the percentage of uncovered individuals residing in the State is less than the percentage of such individuals determined for the State for the preceding fiscal year--

‘(I) if the State is a low DSH State described in paragraph (5)(B), the applicable percentage is equal to the product of the percentage reduction in uncovered individuals for the fiscal year from the preceding fiscal year and 25 percent; and

‘(II) if the State is any other State, the applicable percentage is equal to the product of the percentage reduction in uncovered individuals for the fiscal year from the preceding fiscal year and 50 percent.

‘(C) FISCAL YEAR DESCRIBED- For purposes of subparagraph (A), the fiscal year described in this subparagraph with respect to a State is the first fiscal year that occurs after fiscal year 2012 for which the Secretary determines, on the basis of the most recent American Community Survey of the Bureau of the Census, that the percentage of uncovered individuals residing in the State is at least 45 percent less than the percentage of such individuals determined for the State for fiscal year 2009.

‘(D) EXCLUSION OF PORTIONS DIVERTED FOR COVERAGE EXPANSIONS- For purposes of applying the applicable percentage reduction under subparagraph (A) to the DSH allotment for a State for a fiscal year, the DSH allotment for a State that would be determined under this subsection for the State for the fiscal year without the application of this paragraph (and prior to any such reduction) shall not include any portion of the allotment for which the Secretary has approved the State’s diversion to the costs of providing medical assistance or other health benefits coverage under a waiver that is in effect on July 2009.

‘(E) MINIMUM ALLOTMENT- In no event shall the DSH allotment determined for a State in accordance with this paragraph for fiscal year 2013 or any succeeding fiscal year be less than the amount equal to 35 percent of the DSH allotment determined for the State for fiscal year 2012 under this subsection (and after the application of this paragraph, if applicable), increased by the percentage change in the consumer price index for all urban consumers (all items, U.S. city average) for each previous fiscal year occurring before the fiscal year.

‘(F) UNCOVERED INDIVIDUALS- In this paragraph, the term ‘uncovered individuals’ means individuals with no health insurance coverage at any time during a year (as determined by the Secretary based on the most recent data available).’.

(b) Effective Date- The amendments made by subsection (a) take effect on October 1, 2011.