The Centers for Medicare & Medicaid Services (CMS) issued guidance explaining its updated interpretation of when states can claim federal financial participation (FFP), or matching funds, for emergency Medicaid-covered services provided to immigrants who are ineligible for full benefits. Under its new interpretation of section 1903(v) of the Social Security Act, CMS stated its intention to interpret the emergency Medicaid provision to apply “only to specific payments made for care and services necessary for the treatment of an emergency medical condition actually furnished.” Capitation and risk-based payments, which are commonly used in managed care, are no longer eligible for FFP for this population.

The guidance, SMD # 25-003, Medicaid Managed Care Payments and Emergency Medical Condition Coverage for Aliens Ineligible for Full Medicaid Benefits, was issued to state Medicaid directors on September 30, 2025.

Under the new guidance, CMS provided two options: states must either provide services through fee-for-service, or must contract with prepaid inpatient health plans or prepaid ambulatory health plans on a non-risk basis, where none of the costs for this population would be considered in prospective payments or administrative spending. CMS will require states to align their managed care contracts, rate certifications, and payment methodologies with the new interpretation no later than the start of the first rating period beginning on or after one year from publication—January 1, 2027, for states operating on a calendar-year cycle.

The guidance applies to capitated payments made to managed care organizations, prepaid inpatient health plans, or prepaid ambulatory health plans. It also applies to primary care case management (PCCM) entities, which are not risk-based managed care entities.

CMS said that capitated payments made to these entities include expenses for non-benefit costs of managed care plan administration, taxes, contributions to reserves, risk margin, cost of capital, and other operational costs. Declaring that these non-benefit costs cannot be characterized as for care and services, CMS stated that the capitation payments do not qualify for FFP. States may not include aliens ineligible for full Medicaid benefits in the development of capitation rates or rates for risk-based contracts.

PCCM entities receive a case management fee for providing case management. They are paid a fee to provide administrative functions, such as a call center and the provision of payment to fee-for-service provider organizations on behalf of the state. CMS said payments to PCCMs and PCCM entities cannot be characterized as “care and services necessary to treat an emergency medical condition.” Additionally, states may not include aliens ineligible for full Medicaid benefits in managed care contracts with PCCMs and PCCM entities.

CMS noted program and fiscal integrity concerns related to how states use managed care to provide emergency Medicaid, including:

• States may be claiming FFP for costs beyond those allowable for care and services needed to treat an emergency medical condition.
• Medicaid may be cross-subsidizing state-only programs that provide additional services to aliens ineligible for full Medicaid benefits.

For more information, contact: Office of Communications, U.S. Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244; 202-690-6145; Website: https://www.cms.gov/

January 2026     00US26EUA0002