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Pscholka Presses Feds To Reconsider Ruling Affecting Medicaid HMO Tax

July 14, 2015

The federal government’s view of a state tax used to draw down Medicaid dollars has some lawmakers questioning whether Michigan could lose that Medicaid match money.

The state levies a 6 percent use tax on Medicaid health maintenance organizations (HMOs), which is also referred to as a Quality Assurance Assessment Program (QAAP). 

Between the revenue it generates and the federal money it draws down for Medicaid, the state gets about $1.3 billion, according to a press release issued by Rep. Al PSCHOLKA’s (R-Stevensville) office. 

But guidelines issued by the Centers for Medicare and Medicaid Services (CMS) in July 2014 suggested the state’s use tax might not qualify as a way to draw down those funds. In other words, much of that $1.3 billion could be in jeopardy. 

Those guidelines were challenged in a letter sent July 6, signed by Reps. Pscholka, Harvey SANTANA (D-Detroit), Jon BUMSTEAD (R-Newaygo) and Rob VERHEULEN (R-Walker). 

Federal law says medical assistance provided to a state can be reduced if revenues are raised by certain health care-related taxes, according to the letter. The feds then say a tax is health care-related if 85 percent of the burden falls on health care providers. 

According to Pscholka’s letter, the use tax burden on providers will amount to 28 percent in Fiscal Year (FY) 2015. So lawmakers believe the state is in the clear. 

But what tripped lawmakers up is when CMS said in addition to the 85 percent threshold, “this provision does not establish a safe harbor for any tax on health care providers that falls below the threshold.” 

The lawmakers complained about the “vagueness” of the CMS’ determination and said it would have “significant unintended consequences for the State of Michigan and virtually every other state.” 

The lawmakers asked CMS for greater clarity on the issued guideline, or for CMS to request changing federal statute. 

Jennifer SMITH, spokesperson for the Michigan Department of Health and Human Services (DHHS), said the department has told lawmakers that by December 2016, the use tax on Medicaid HMOs can no longer be used. 

Asked what DHHS’ preference is for replacing the use tax revenue, Smith said the DHHS is always looking to work with its legislative partners on a solution. 

Rick MURDOCK, executive director of the Michigan Association of Heath Plans (MAHP), said future choices for replacing the Medicaid HMO use tax are limited, noting that conversations about road funding in the Legislature include using more general fund dollars. 

Murdock said the QAAP on Medicaid HMOs began in 2009 but was discontinued in 2011, when the Health Insurance Claims Assessment (HICA) came in. 

But HICA wasn’t successful at raising the revenue to match Medicaid funds that many had hoped, which led to multiple budget holes lawmakers had to end up filling in recent years. 

So last year, lawmakers employed a new strategy: They reduced the HICA rate slightly, while also bringing back the 6 percent use tax on the Medicaid HMOs to make up the HICA shortfall.

Pscholka’s letter mentioned the CMS guidelines were issued last year, and the looming possibility of losing the use tax to drawn down Medicaid money crept into budget talks again this year.

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