Fiscal Note
Fiscal Services Division
HF 685 – Medicaid, Liens, and Third-Party Recovery (LSB1182HZ.1)
Staff Contact: Eric Richardson (515.281.6767) eric.richardson@legis.iowa.gov
Fiscal Note Version – Final Action
Description
House File 685 relates to the Medicaid program, including third-party lien recovery, taxation of
managed care organization (MCO) premiums, and nursing facility licensing and financing.
Division I — Medicaid Program Third-Party Recovery
Description and Background
Division I relates to the duties of third parties, defined in the Division, and includes insurance
companies. Division I does the following:
• Provides that third-party obligations specified in the Division are a condition of doing
business in Iowa.
• Requires that a third party that is an insurance carrier enter into a health insurance data
match program with the Department of Health and Human Services (HHS) to compare
beneficiaries between State and third-party systems.
• Prohibits a third party from denying any claim submitted by a Medicaid payor, including an
MCO, to a third party solely due to procedural reasons.
• Allows the HHS to adopt administrative rules to administer Division I.
• Specifies that it is the intent of the General Assembly that Medicaid payors be the payor of
last resort for medical services.
• Allows a Medicaid payor to assign its rights under the Division to another Medicaid payor, a
provider, or a contractor.
• Requires a Medicaid recipient or the recipient’s agent to inform the Medicaid payor of any
third-party benefits the recipient is eligible to receive.
• Specifies that a Medicaid payor is automatically eligible to collect a debt and has an
automatic lien upon the collateral for the full amount of medical assistance provided by the
Medicaid payor for medical services furnished as a result of any covered illness or injury for
which a third party is or may be liable.
• Allows a Medicaid payor to institute, intervene in, or join in any legal or administrative
proceeding to recover damages in an action derivative of the rights of the recipient, and
requires that the Medicaid payor provide written notice to the recipient no later than 30 days
after filing a derivative action against a third party.
• Makes the entire amount of a settlement between a recipient and a third party subject to a
Medicaid payor’s claim for reimbursement of the amount of medical assistance provided.
The Division establishes a rebuttable presumption that in a tort action against a third party,
all Medicaid payors collectively receive two-thirds of the remaining amount recovered or the
total amount of medical assistance provided by the Medicaid payors, whichever is less, after
attorney and filing fees. The Division allows the recipient to contest the calculation in court.
If there are competing claims of Medicaid payors, each payor is entitled to the respective pro
rata share of the available recovered amount.
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• Allows a Medicaid payor to make settlements with third parties.
Iowa Code section 249A.37, which is stricken in Division I, currently relates to health care
information sharing by health insurers. The section allows the State to request information
regarding a patient from health insurers, requires that health insurers accept the State’s right of
recovery from the insurers for Medicaid expenses, mandates a response from health insurers
based on a State request regarding a claim, and requires a health insurer to agree not to deny
claims based on a procedural reason.
Medicaid third-party liability refers to the legal obligation of third parties, such as health insurers,
to pay part or all of the expenditures for medical assistance provided under a Medicaid state
plan. Under federal law, third parties are the primary payor of medical expenses when
coverage also includes Medicaid. State Medicaid programs may contract with MCOs to provide
health care to beneficiaries, and based on Section 1902(a) of the federal Social Security Act,
may delegate responsibility and authority to the MCOs to perform third-party discovery and
recovery activities. The Medicaid program may authorize the MCO to use a contractor to
complete these activities. According to 42 U.S.C. §1396a(a)(25)(I), when third-party liability
responsibilities are delegated to an MCO, third parties are required to treat the MCO as if it were
the State, including providing access to third-party eligibility and claims data to identify
individuals with third-party coverage, adhering to the assignment of rights from the State to the
MCO of a beneficiary’s right to payment by health insurers for health care services, and
refraining from denying payment of claims submitted by the MCO for procedural reasons. In
FY 2022, Iowa MCOs recovered $227.7 million in third-party liability from other insurers.
In 2022, the U.S. Supreme Court ruled in Gallardo v. Marstiller that state Medicaid programs are
permitted to seek reimbursement from settlement payments allocated for future medical care.
This ruling validated a state’s right to collect tort recoveries from Medicaid beneficiaries, and
allows Iowa and a Medicaid payor to expand its ability to recoup health care costs from third
parties, including settlements and judgments.
Assumptions/Fiscal Impact
According to the HHS, the fiscal impact of Division I due to third-party liability recoveries is
expected to be minimal and cannot be estimated due to lack of data. Future recoveries may
affect capitation rate-setting for Medicaid MCOs.
Division II — Medicaid Managed Care Organization Taxation of Premiums
Description and Background
Division II establishes a new 2.5% tax on MCO premiums received and taxable, set to begin on
January 1, 2024. The tax will be paid on or before March 1 of the year following the calendar
year when the tax is due. The MCOs are expected to prepay the tax, with one-half of the
MCO’s liability for the preceding calendar year due on or before June 1 and the other half of the
prepayment due on or before August 15. Any excess prepayment may be credited to the
following year or refunded, as specified in the Division. A Medicaid MCO Premiums Fund is
created in the Division, and all MCO premium tax revenue will be deposited into the Fund and
appropriated to the HHS to use for the Medicaid program. Moneys in the Fund do not revert
and are permitted to carry forward. Any interest earned is credited to the Fund.
Currently, there are a number of sources of State revenue used as matching funds to access
federal resources in the Medicaid program, outside of the annual State Medicaid appropriation,
which was $1.510 billion in 2022 Iowa Acts, House File 2578 (FY 2023 Health and Human
Services Appropriations Act). Iowa Code section 249A.21 specifies an assessment (not to
exceed 6.0% for actual paid claims) for intermediate care facilities for persons with an
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intellectual disability (ICF/ID), which is paid by facilities to the HHS to use for federal matching
funds for Medicaid services. The ICF/ID also has a 1.5% penalty on the amount owed to the
HHS. Other assessments in statute for Medicaid include the Nursing Facility Quality Assurance
Assessment Program (Iowa Code chapter 249L) and the Hospital Health Care Access
Assessment Program (Iowa Code chapter 249M).
Assumptions/Fiscal Impact
• According to the HHS, the 2.5% premium tax received from State-funded MCO premiums is
to be reimbursed to MCOs through the capitation rate-setting process.
• MCOs pay the entire premium tax for calendar year (CY) 2024 on March 1, 2025 (FY 2025),
while the 50.0% prepayments for CY 2025 are made on June 1, 2025 (FY 2025) and August
15, 2025 (FY 2026).
• Prepayment of CY 2026 taxes begins on June 1, 2026 (FY 2026).
• Federal reimbursement using State MCO premium tax revenue is based on blended Federal
Medical Assistance Percentage (FMAP) rates of 70.0% federal funds and 30.0% State
funds.
• According to the HHS, in FY 2025 the MCO premium tax will create $66.8 million from State-
funded premiums and $155.8 million from federally funded premiums.
• According to the HHS, in FY 2026 and beyond, the MCO premium tax will create $44.5
million from State-funded premiums and $103.9 million from federally funded premiums.
• Decisions on how to allocate the State net revenue from the MCO premium tax have not
been made by the HHS and the General Assembly and are not identified in the Bill.
Figure 1 summarizes the revenue impact from Division II of the Bill. Revenues are to be
deposited into the Medicaid MCO Premiums Fund created in Division II.
Figure 1 — HF 685 (Division II) — MCO Premium Tax Revenue (In Millions)
MCO Reimbursement
Fiscal Year MCO Premium Tax State Net Revenue
from State
FY 2024 $ 0.0 $ 0.0 $ 0.0
FY 2025 222.6 -66.8 155.8
FY 2026 148.4 -44.5 103.9
Division III — Nursing Facility Licensing and Financing
Description and Background
Division III relates to the imposition of a temporary moratorium for new construction or an
increase in bed capacity of nursing facilities. Division III does the following:
• Starting July 1, 2023, allows the Department of Inspections, Appeals, and Licensing (DIAL),
in consultation with the HHS, to impose a temporary moratorium on the submission of
applications for new construction of nursing facilities or a permanent change that increases
bed capacity for existing nursing facilities for an initial period of 12 months. The DIAL may
extend the moratorium in 6-month increments but for no longer than 36 months.
• Allows the DIAL, in consultation with the HHS, to waive the moratorium if there is a need for
specialized-needs beds or if the average occupancy of all licensed nursing facility beds
located within the county and contiguous counties of the location of the proposed increase in
nursing facility bed capacity exceeded 85.0% during the three most recent calendar quarters
as published by the Centers for Medicare and Medicaid Services (CMS).
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• Requires the DIAL to publish any request for a waiver of the moratorium and any
explanation approving or denying the waiver request.
• Requires applicants to the DIAL for a nursing facility license to provide information related to
the following:
• The organizational and ownership structures of the applicant.
• Any related party transactions and associated reimbursement structures.
• The financial suitability of the applicant to operate a nursing facility.
• Whether the applicant has voluntarily surrendered a license while under investigation in
another licensing jurisdiction.
• Whether another licensing jurisdiction has taken disciplinary action against the applicant
relating to the applicant’s operation of a nursing facility.
• Whether there are complaints, allegations, or investigations against the applicant in
another licensing jurisdiction.
• Supporting documentation regarding the resolution of any disciplinary action against the
applicant in another jurisdiction.
• Whether a nursing facility owned or operated by the applicant has been subject to a
court-appointed receiver or temporary manager.
• Allows the DIAL to request additional or supplemental information with the application,
including verification of cash or liquid reserves to maintain nursing facility operations for at
least two months.
• Allows the DIAL to require an applicant for a nursing facility to establish an escrow account
containing funds sufficient to support full-service operation of the facility for at least a two-
month period, which is required to be terminated no later than five years from the date of
initial commencement of operation of a nursing facility.
• Requires the HHS to develop a publicly available dashboard by January 1, 2024, detailing
the number of nursing facility beds available in the State, the overall quality rating of the
available nursing facility beds as specified by the CMS, any increase or decrease in the
number of available nursing facility beds in each county, and an explanation of the causes of
any increase or decrease in available nursing facility beds.
• Prohibits hospitals participating in the Hospital Directed Payment Program from passing on
a directed payment increase to non-Medicaid payors, with a penalty of being reimbursed at
the base rate provided under Medicaid for one year from the date the violation is discovered.
• Prohibits a nursing facility from passing the quality assurance assessment on to
non-Medicaid payors, including as a rate increase or service charge.
• Requires the HHS to convene a workgroup to review the existing nursing facility bed need
formula, with a report of recommendations of the workgroup regarding improvement to the
formula submitted to the Governor and the General Assembly by December 2, 2024.
Iowa Code chapter 249L outlines the quality assurance assessment, which was created in 2009
Iowa Acts, chapter 160 (Nursing Facilities — Quality Assurance Assessments and Provider
Reimbursements Act), and is imposed on nursing facilities to be used for federal reimbursement
of Medicaid-eligible services. In FY 2022, $49.5 million was collected from the assessment to
use for Medicaid.
2023 Iowa Acts, Senate File 514 (State Government Alignment Act), transfers the responsibility
for licensing of nursing facilities from the Iowa Department of Public Health to the DIAL effective
July 1, 2023.
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Assumptions/Fiscal Impact
Division III of the Bill is expected to have no fiscal impact. It was reported by the HHS that the
section of the Bill requiring the HHS to create a dashboard detailing nursing facility bed data can
be performed utilizing existing department personnel and contracts.
Sources
Department of Health and Human Services
Centers for Medicare and Medicaid Services
Iowa Judicial Branch
Legislative Services Agency analysis
/s/ Jennifer Acton
May 11, 2023
Doc ID 1374017
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
www.legis.iowa.gov
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Statutes affected:
Introduced: 249A.37, 249A.54, 432.1A
Enrolled: 249A.37, 249A.54, 432.1A, 432.1