In a final rule on provider taxes, the Centers for Medicare & Medicaid Services (CMS) adds requirements to determine whether taxes are uniformly applied. The policy primarily restricts managed care taxes that impose differential tax rates on Medicaid health plans.

The Medicaid statute allows provider taxes that are broad-based and uniform. States may waive these requirements if certain statistical tests deem a tax generally redistributive, meaning that taxes imposed on non-Medicaid services are used as the state's share for Medicaid payments.  

CMS will implement additional requirements to prove the tax is generally redistributive, even if it passes the statistical test. Under the rule, a tax will not be permissible if: 

• The tax rate is higher for Medicaid plans or providers than non-Medicaid plans or providers 
• The tax rate imposed on any group defined as having a low volume or percentage of Medicaid is lower than a group defined as having a high volume or percentage of Medicaid 
• The tax uses proxy measures or characteristics for Medicaid, such as describing Medicaid as a federal and state health care program, or uses income as a percentage of the federal poverty level to define Medicaid and non-Medicaid plans or providers 

CMS estimates this rule will affect provider taxes in seven states. 

States found in violation of the new tax rule must quickly transition to a permissible tax structure:

• For taxes on managed care organization (MCO) services with waiver approvals within two years of April 3, 2026, states will have through the end of calendar year 2026 to comply
• For taxes on MCO services with waiver approvals two or more years before April 3, 2026, states have through the end of the state's fiscal year (FY) 2027 to comply
• For taxes on permissible classes, states have through the end of the state's FY 2028 to comply

This rule takes effect April 3, 2026.

Contact Director of Policy Rob Nelb, MPH, at [email protected] or 202.585.0127 with questions.