Page 16

Page 16 – CMCS Informational Bulletin rates for non-expansion states for rating periods beginning on or after July 4, 2025. In the absence of a total published Medicare payment rate, section 71116 directs CMS to utilize the payment rate under the Medicaid state plan (or under a waiver of such plan) as the limit. Section 71116(b) also includes a temporary grandfathering period for certain SDPs until the rating period beginning on or after January 1, 2028, at which point such SDPs must comply with specified phase down requirements. On September 9, 2025,39 CMS sent a letter to states outlining preliminary guidance on section 71116 to aid state planning until a final rule is promulgated. CMS acknowledges that this letter is preliminary in nature, and final policies will depend on the contents of a final rule. Under section 71116(d)(3), this provision is applicable to all states and the District of Columbia; it does not apply to the territories. Section 71117. Requirements Regarding Waiver of Uniform Tax Requirement for Medicaid Provider Tax As discussed earlier in this CIB, states are currently allowed to fund the non-federal share of Medicaid through certain health care-related taxes. Health care-related taxes must meet requirements in section 1903(w) of the Act and implementing regulations at 42 CFR Part 433. These requirements include that taxes must be imposed on a permissible class of providers, the taxes must be broad-based and uniform (unless a waiver is approved), and that taxpayers are not held harmless. Broad-based and uniform requirements may be waived as long as the tax is generally redistributive in nature and the amount of the tax is not directly correlated to Medicaid payments for items or services with respect to which the tax is imposed. The regulations establish two statistical tests for determining whether a proposed tax would be generally redistributive in nature, with the applicable test depending on whether a waiver of the uniformity requirement is requested. An unintended loophole in the statistical test used to determine if a health care-related tax is generally redistributive where a waiver of the uniformity requirement is requested has enabled some states to shift the financial burden of financing the Medicaid program to the federal government without the state bearing the requisite non-federal share. CMS issued a proposed rule on May 15, 2025, to close this loophole.40 Section 71117 amends section 1903(w) of the Act to codify the proposed rule’s provisions that a health care-related tax would not be considered generally redistributive if, within a permissible class, the tax rate imposed on the taxpayer or tax rate group explicitly defined by its relatively lower volume or percentage of Medicaid taxable units is lower than the tax rate imposed on any determined in accordance with standards prescribed by the Secretary in regulations) under the State plan (or waiver of such plan) of such State under title XIX of such Act. 39 https://www.medicaid.gov/medicaid/managed-care/downloads/sdp-ltr-09092025.pdf 40 Federal Register: Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole Proposed Rule