In a new rule on provider taxes, the Centers for Medicare & Medicaid Services (CMS) proposes to add more requirements to determine whether taxes are uniformly applied. The policy primarily intends to restrict managed care taxes that impose differential tax rates on Medicaid health plans, but CMS estimates that the rule also will affect at least one hospital provider tax.
The Medicaid statute allows provider taxes that are broad-based and uniform, and the statute also allows states to waive these requirements if the tax meets certain statistical tests. The statistical tests intend to show whether the tax is generally redistributive, meaning that taxes imposed on non-Medicaid services are used as the state’s share for Medicaid payments.
CMS proposes additional requirements to prove the tax is generally redistributive, even if it passes the statistical test. Under the proposed rule, a tax will not be permissible if:
- The tax rate is higher for Medicaid plans or providers than non-Medicaid plans or providers
- The tax rate imposed on any group defined as having low volume or percentage of Medicaid is lower than a group defined as having high volume or percentage of Medicaid
- The tax uses proxy measures or characteristics for Medicaid, such as describing Medicaid as a federal and state health care program, or uses income as a percentage of the federal poverty level to define Medicaid and non-Medicaid plans or providers
Should this rule take effect, CMS estimates that six state managed care taxes and one state hospital tax would be affected.
States found in violation of the new tax rule must quickly transition to a permissible tax structure. States with tax waivers approved two or fewer years before the final rule’s effective date will not be eligible for a transition period; they must comply on the final rule effective date.
States with tax waivers approved more than two years before the final rule’s effective date must comply at the start of the first state fiscal year beginning at least one year after the final rule’s effective date.
Comments are due July 14.
Contact Director of Policy Rob Nelb, MPH, at rnelb@essentialhospitals.org or 202.585.0127 with questions.
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