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State officials press feds on controversial health plan tax as budget talks persist

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New York state officials are racing the clock to squeeze a short-term fix to Medicaid spending into the budget.

State lawmakers are pushing a last-minute budget proposal to create a new tax on managed care plans, which they say could generate $4 billion in federal Medicaid revenue each year. The proposal, released in the legislatures’ one-house budget bills, was a response to Gov. Kathy Hochul’s $1.2 billion Medicaid spending cuts, most of which would result in losses to home care and safety-net hospitals.

The new plan, which has the support of the influential Greater New York Hospital Association, hinges on the state’s ability to use a Medicaid tax loophole to unlock billions from the federal government. Under the proposal, New York state would submit a federal waiver requesting to create a new tax on managed care organizations. But it would also raise Medicaid reimbursement rates to cover the health plans’ costs. The Medicaid reimbursement rate increases would come with an influx of federal matching funds — at no cost to the state.

Hochul has signaled that she is open to the plan, telling reporters last week that it’s something her administration has been “pushing very, very hard on.” But one big question stands between New York and billions to add in the state budget: whether or not the federal government will approve it.

Eighteen other states have implemented so-called provider taxes to capitalize on federal Medicaid funds. But New York’s managed care organization tax proposal is most closely modeled after a plan in California, which created a higher tax on Medicaid managed care organizations than it did on non-Medicaid plans. That discrepancy allowed California to pump funds into the Medicaid program without placing a burden on private insurers – but it also violated some federal regulations requiring such a tax to be uniform across all providers and “redistributive” to the Medicaid program.

Last summer the Centers for Medicare and Medicaid Services begrudgingly greenlit California’s proposal through 2026. Federal officials hinted in a letter submitted alongside the approval that California’s plan violated the spirit of the program, and that the agency planned to devise new regulatory requirements to “address the issue.”

But despite reluctance from federal officials, Hochul said that state officials haven’t given up on taking advantage of the Medicaid loophole before it vanishes.

“We’ve been very, very persistent in asking them to give us the same accommodation,” Hochul said, adding that New York hasn’t gotten the nod quite yet, “but they’ve heard us.”

Sen. Gustavo Rivera, who chairs the health committee, said he’s cautiously optimistic about securing the additional funds, stating that the federal government “didn’t close the door.”

But several details about the tax proposal remain unclear. Rivera said that state officials are still determining how much it would tax managed care organizations, and under what timeline the state could count on the revenue. The state could get an approval from the federal government by next fall — but it’s not certain when those funds would become available and if they could be factored into the upcoming budget.

Rivera also said that the projected $4 billion in federal revenue is likely an overestimate, but he did not confirm how much the state is expecting to bring in from this proposal.

Patrick Orecki, director of state studies at the watchdog group Citizens Budget Commission, said that if there’s money on the table, the state should go after it. But the challenges lie in banking on $4 billion in the budget without a guarantee that those funds will come to fruition.

Orecki also said that short-term funds should not be used for long-term programs — including increases to Medicaid reimbursement rates for hospitals and nursing homes. “That is a big red flag for us.”

Rivera said that the MCO tax proposal would act as a bridge to fill holes in the Medicaid budget until officials can secure more sustainable revenue streams to fully fund hospitals, nursing homes and other health care facilities.

Orecki said that a bridge is the right concept. “But that means the bridge has to get you from one shore to the other, not a bridge that ends halfway across the river.”

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Amanda D'Ambrosio , 2024-04-08 11:33:04

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