Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole Proposed Rule

DEPARTMENT OF HEALTH AND HUMAN SERVICES <SUBAGY>Centers for Medicare & Medicaid Services</SUBAGY> <CFR>42 CFR Part 433</CFR> <DEPDOC>[CMS-2448-P]</DEPDOC> <RIN>RIN 0938-AV58</RIN> <SUBJECT>Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations—Closing a Health Care-Related Tax Loophole Proposed Rule</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS). <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This proposed rule is intended to address a loophole in a regulatory statistical test applied to State proposals for Medicaid tax waivers. The test is designed to ensure, as required by statute, that non-uniform or non-broad -based health care-related taxes, authorized under a waiver, are generally redistributive. The inadvertent loophole currently allows some health care-related taxes, especially taxes on managed care organizations, to be imposed at higher tax rates on Medicaid taxable units than non-Medicaid taxable units, contrary to statutory and regulatory intent for health care-related taxes to be generally redistributive. The proposed provisions would better implement the statutory requirements by adding additional safeguards to ensure that tax waivers that exploit the loophole because they pass the current statistical test, but are not generally redistributive, are not approvable. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> To be assured consideration, comments must be received at one of the addresses provided below, by July 14, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> In commenting, please refer to file code CMS-2448-P. Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed): 1. <E T="03">Electronically.</E> You may submit electronic comments on this regulation to <E T="03">http://www.regulations.gov.</E> Follow the “Submit a comment” instructions. 2. <E T="03">By regular mail.</E> You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2448-P, P.O. Box 8016, Baltimore, MD 21244-8016. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. <E T="03">By express or overnight mail.</E> You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2448-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. For information on viewing public comments, see the beginning of the <E T="02">SUPPLEMENTARY INFORMATION</E> section. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Jonathan Endelman, (410) 786-4738, and Stuart Goldstein, (410) 786-0694, for Health Care-Related Taxes. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <E T="03">Inspection of Public Comments:</E> All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received: <E T="03">http://www.regulations.gov.</E> Follow the search instructions on that website to view public comments. CMS will not post on <E T="03">Regulations.gov</E> public comments that make threats to individuals or institutions or suggest that the commenter will take actions to harm an individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments. <E T="03">Plain Language Summary:</E> In accordance with 5 U.S.C. 553(b)(4), a plain language summary of this rule may be found at <E T="03">https://www.regulations.gov/.</E> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Overview</HD> Title XIX of the Social Security Act (the Act) authorizes Federal grants to the States for Medicaid programs to provide medical assistance to persons with limited income and resources. While Medicaid programs are administered by the States, the program is jointly financed by the Federal and State governments. The Federal government pays its share of Medicaid expenditures to the State on a quarterly basis according to a formula described in sections 1903 and 1905(b) of the Act. The amount of the Federal share of Medicaid expenditures is called Federal financial participation (FFP). The State pays its share of Medicaid expenditures in accordance with section 1902(a)(2) of the Act. As described in more detail in the next section, the State may raise its non-Federal share obligation in various ways, subject to certain requirements, including through health care-related taxes (generally, taxing health care items or services, or providers of such items and services). The Medicaid Voluntary Contribution and Provider Specific Tax Amendments of 1991 (Pub. L. 102-234, enacted December 12, 1991) amended section 1903 of the Act to specify limitations on the amount of FFP available for medical assistance expenditures in a fiscal year when States receive certain funds donated from providers or certain related entities, and revenues generated by certain health care-related taxes. The Centers for Medicare & Medicaid Services (CMS) issued regulations to implement the statutory provisions concerning provider-related donations and health care-related taxes in an interim final rule (with comment period) published in November 1992 (57 FR 55118 (Nov. 24, 1992). CMS issued the final rule in August 1993 (58 FR 43156 (Aug. 13, 1993)). The Federal statute and implementing regulations were intended to prevent States from shifting a disproportionate amount of the tax burden to entities with a high percentage of Medicaid business, thus shifting the State responsibility for financing of the program to the Federal government. In these financing-shifting scenarios, Medicaid payments to providers would be made up of the Federal share plus non-Federal share raised from the providers themselves, rather than obtained from general revenue or other permissible source or non-Federal share. In part, the statute addresses this concern by requiring that health care-related taxes be broad-based (generally, applicable to an entire permissible class of health care items and services, or to providers of the same) and uniform (generally, applied at the same rate to all health care items and services, or providers, in a permissible class). The statute does permit waivers of the broad-based and uniform requirements under certain circumstances, including that the Secretary of Health and Human Services (Secretary) must determine that the net impact of the tax and associated Medicaid expenditures as proposed by the State would be generally redistributive in nature, which is at issue in these provisions and which we discuss more fully later. However, since that time, we have discovered that, due to an unintended loophole in the statistical test used to determine if a health care-related tax is generally redistributive, as specified in the August 1993 final rule, some States are still able to shift the financial burden of the non-Federal share of Medicaid program expenditures to entities with a high percentage of Medicaid business, and thus ultimately to the Federal government, contrary to the statutory framework. <HD SOURCE="HD2">B. Medicaid Program Financing</HD> Shared responsibility for financing lies at the foundation of the Medicaid program. Sections 1902(a), 1903(a), and 1905(b) of the Act require States to share in the cost of medical assistance and in the cost of administering the State plan. Under this statutory framework, Medicaid expenditures are jointly funded by the Federal and State governments. Section 1903(a)(1) of the Act provides for payments to States of a percentage of medical assistance expenditures authorized under their approved State plan. Generally, FFP is available when a covered Medicaid service is provided to a Medicaid beneficiary, which results in a Federally matchable expenditure that is funded in part through non-Federal funds from the State or a non-State governmental entity. <SU>1</SU> <FTREF/> The share of Federal funding for medical assistance expenditures is determined by the Federal medical assistance percentage (FMAP), which is calculated for each State using a formula set forth in section 1905(b) of the Act, or other applicable FFP match rates specified by the statute. <FTNT> <SU>1</SU>  See the Medicaid and CHIP Payment and Access Commission's (MACPAC) list of “Federal Match Rate Exceptions” for a comprehensive list of higher FMAPs at <E T="03">https://www.macpac.gov/federal-match-rate-exceptions/.</E> </FTNT> Section 1902(a)(2) of the Act and its implementing regulation in 42 CFR part 433, subpart B requires States to share in the cost of Medicaid expenditures, with financial participation by the State of not less than 40 percent of the non-Federal share of expenditures. These requirements also permit other units of non-State government to contribute to the financing of the non-Federal share of medical assistance expenditures up to the remaining 60 percent of the non-Federal share. As a result, States must participate in operating an efficient and fiscally responsible system for providing health care services to eligible beneficiaries. Because States must invest some of their own dollars to pay for the program, they have an incentive to monitor and operate their programs competently to ensure the best va ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 158k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━