New CMS Rule Could Affect Tax Exemptions for Life Plan Communities

Regulation | December 05, 2019

Under a new CMS rule, life plan communities in some states could pay provider taxes for the first time.

The Centers for Medicare and Medicaid Services (CMS) issued a proposed regulation in November 2019 that seeks to change the types of provider taxes states can levy and still receive federal Medicaid funds. The proposed rule may disallow state tax exemptions that currently allow life plan communities to save significant money.

The new rule is part of a broader effort by CMS to limit federal spending via state provider taxes, supplemental payments, and other items as part of the Medicaid Fiscal Accountability Regulation (MFAR).

Previously, LeadingAge posted an analysis of the proposed rule and a full side-by-side comparison of the rule to current policy. This article focuses on the rule’s potential impact on life plan communities.

Tax Exemptions for Life Plan Communities

Almost every state charges nursing home providers some sort of provider tax, often based on bed count. In some states, life plan communities are exempt from paying the tax or pay a discounted amount. As a result, these communities, which are often private-pay driven, save significant monies by not having to pay the tax.

Under the CMS proposal, however, these tax exemptions may not be allowed to continue, and life plan communities may have to pay provider taxes.

State Taxes and The Federal Match

The federal government matches state Medicaid funding dollar-for-dollar (and sometimes more). States have long used provider taxes to increase the amount of state funds that can be used to receive the federal match. The proposed rule seeks to condition receipt of that federal money on state provider taxes meeting certain new criteria.

Specifically, CMS proposes to disallow matching for state funds generated by taxes that “impose undue burden” on Medicaid. The proposed rule lists out situations that would pose such a burden on Medicaid, including not taxing groups of providers with no Medicaid services or taxing those providers at a lower rate compared to other groups.

CMS also writes in the proposal that it can identify groups “based on any commonality” that could be a proxy for “having no … or relatively lower Medicaid activity” than other providers, thereby burdening Medicaid.

In other words, tax exemptions for life plan communities could likely be considered by CMS as noncompliant with the proposal and, if finalized, could be disallowed for the purposes of federal matching funds. Since most provider taxes exist to generate additional federal dollars, states could simply extend existing taxes to life plan communities.

State Tax Structures Vary

It’s worth noting that provider tax structures are state-based. While most states have a provider tax for nursing homes, each state has its own tax level and conditions for exemptions. Some states do not exempt or provide discounts to life plan communities, while others provide a full exemption.

There are some resources available that list state-level provider taxes, but there is no central hub for data on how life plan communities are treated across states. LeadingAge is working with our state partners to identify the role of life plan community exemptions and discounts in nursing home provider taxes and will communicate our findings to CMS.

Comments on this proposed rule are due on January 17. Members may reach out to Brendan Flinn of the LeadingAge staff with questions and concerns related to the rule.