CMS Pub. 100-16, ch. 10, § 60

The following table presents example scenarios in which a question of Federal

preemption is present and answers whether or not Federal law would preempt State law

in each.

Example Scenario Preemption by Federal Law?

An MA organization applies to a State to

offer a new MA PPO plan in the State. The

organization offering the proposed PPO

plan indicates that it will offer its plan to

Medicare beneficiaries in the entire State.

The State denies the license on the basis

that the organization lacks the financial

solvency to serve the entire state.

No – Federal law does not preempt State

solvency requirements. States may decline

to license an MA plan to operate in a State

if the State determines that the organization

offering the MA plan does not meet State

solvency requirements. The State may also

elect to limit the service area for which the

plan is licensed based on the financial

resources (i.e., solvency) of the MA

organization proposing to offer the MA

plan.

An MA HMO plan currently being offered

in a State seeks to expand its service area

Yes – In this case, Federal law preempts

State law. The State has already licensed

from 6 counties to all counties in the State.

The MA organization requests that the

State certify that the scope of its license

allows it to be offered in the entire State.

The State denies the service area expansion

request on the basis that the plan has not

demonstrated to the State that it has

adequate network and organizational

systems capacity to serve the entire State.

the MA organization as a risk-bearing

entity, and CMS has comprehensive

network and organizational capacity

standards. An MA plan is only required to

meet Federal standards. States may not

review or impose State standards for

network or organizational capacity.

An MA organization that is currently

offering an MA HMO plan requests

certification from a State to offer an MA

private fee-for-service (PFFS) plan to serve

Medicare beneficiaries in the entire State

under its existing State license. The State

denies the request on the basis that the

PFFS product must be licensed as an

indemnity insurance product and cannot be

offered by the MA organization under a

State HMO license.

No – A State may require that an MA plan

offered in the State operate within the

scope of its license. In this case the MA

organization seeking to offer an MA PFFS

plan in the State must meet the licensure

requirements for an indemnity insurance

product.

NOTE: The scope of State licensure

requirements is restricted by Federal

preemption authority as described in

section 30 of this chapter.

An MA HMO plan currently being offered

in a State is out of compliance with the

State’s licensure solvency standards, has a

negative net worth (liabilities exceed

assets), and the State is allowing the plan to

continue to operate under its license and a

corrective action plan.

No and Yes – The State’s solvency

standards are applied to determine

licensure by a State. CMS has a

requirement, separate from State licensure

requirements, that plans must demonstrate

that the MA organization has a fiscally

sound operation which, at the very least,

maintains a positive net worth (total assets

exceed total liabilities). In this example,

any CMS action would be based on

contract compliance and would not be

licensure related.