The Centers for Medicare & Medicaid Services (CMS) on May 12 issued a proposed rule, Preserving Medicaid Funding for Vulnerable Populations – Closing a Health Care-Related Tax Loophole Proposed Rule (PDF). The rule proposes to revise the Medicaid regulations related to health care-related taxes to ensure that these taxes are generally redistributive. Under the Medicaid statute, states may finance the nonfederal share of Medicaid costs by taxing health care providers, including hospitals and managed care organizations (MCOs). These taxes must be broad-based, uniform, and cannot hold providers harmless. States can request waivers of the broad-based and uniform requirements if they demonstrate, using a statistical formula, that the tax is generally redistributive, meaning it uses revenues from non-Medicaid services to fund the state’s share of Medicaid payments.
The CMS cited its concern with taxes imposed on MCOs in seven states, which the agency said are structured in a way that affects only Medicaid business within the MCOs and are therefore not generally redistributive. The rule would amend the regulations to prohibit states from imposing higher tax rates on entities with more Medicaid business than those with more non-Medicaid business. The CMS estimated the rule will result in $33 billion in federal savings over five years. Comments on the rule are due July 14.