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Proposed Rule Oversteps Federal Law, Could Cost States Funding for Medicaid and Threaten Health Coverage
BALTIMORE, MD – Attorney General Anthony G. Brown today announced he is co-leading a coalition of 24 attorneys general in filing a comment letter opposing a proposed federal rule that the coalition says goes further than federal law allows and could put federal funding for Medicaid at risk and also interfere with state oversight of insurance oversight and operation of state health insurance exchanges.
The rule was proposed by the Centers for Medicare & Medicaid Services (CMS), a federal agency within the U.S. Department of Health and Human Services responsible for Medicaid. Before a rule like this can take effect, the public, including states, has a chance to weigh in by filing comments. The coalition’s comment letter argues that in this case, CMS is rewriting the rules in a way that goes beyond what Congress authorized.
Specifically, the rule could change how the federal government treats certain taxes, fees, and other payments collected by states. CMS has described its proposal as intended to ensure that states pay their share of the cost of Medicaid, the joint federal-state health program that covers low-income families. But the proposal would in fact extend far beyond that purpose and would affect taxes and payments unrelated to Medicaid, improperly interfering with state regulation of health insurance and health care exchanges.
In the comment letter filed with CMS, the coalition raises four key concerns:
- The proposed rule would improperly interfere with state regulation of health insurers. For the first time, CMS would penalize states for collecting taxes and payments from health insurance companies by reducing the amounts the states would receive for Medicaid. This would violate the law, would threaten states’ Medicaid programs, and would improperly interfere with states’ regulation of health insurance.
- Improperly applying new limits to collection of taxes and payments from health insurers. A law passed by Congress in 2025 imposes new limits on some taxes and payments collected by states. CMS’s proposed rule would apply those limits to taxes and payments on health insurers, but that is neither required nor allowed under the 2025 law.
- Eliminating a 30-year-old safety valve. CMS has also proposed to change its criteria for determining when taxes and payments will reduce federal Medicaid contributions. But some of these criteria were written into federal law by Congress and can’t be changed by CMS.
- Piling on costly new paperwork. States could have to reconstruct financial records going back to mid-2025 and build entirely new reporting systems from scratch.
“States are already stretched thin funding health coverage for their residents,” the coalition wrote. “This rule adds new federal overreach and red tape on top of that, without adequate legal justification.” The coalition also warns that if the rule goes through as proposed, it could squeeze state budgets and put funding at risk for Medicaid and interfere with state insurance oversight and operation of Affordable Care Act health exchanges, all programs the states rely on to keep residents insured.
The coalition is urging CMS to withdraw or significantly revise the proposed rule.
Joining Maryland and Colorado in sending the comment letter are the attorneys general of Arizona, California, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, Washington, and Wisconsin.
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