Medicaid Provider Tax Rule: Finalization, as Proposed, Will Create Budgeting Stress, Uncertainty

Recommend

Where states are stretched, their ability to administer efficient programs and maintain high standards of program integrity suffer, we tell CMS, and urge the agency to reconsider the portions of the rule where a less restrictive and less punitive approach would ease state compliance with little effect on its ability to implement statutory obligations.

LeadingAge, in comments submitted to the Centers for Medicare and Medicaid Services (CMS) on the Medicaid Program; Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes, makes the case that the proposed rule extends beyond the statutory text in key ways CMS' obligation to implement section 71115 of 2025's HR 1, which modifies Medicaid health care-related (i.e., provider) tax rules.

As explained at the proposed rule's release earlier this year, the regulation clarifies key terms relating to timing of the provisions, and adds a new tax class for CMS review of compliance, further imperiling state Medicaid financing options.

Our September 21 letter to Administrator Oz urges the agency to realign its rulemaking in a manner that minimizes burden and financial exposure for both providers and states. Scaling back the proposed rule would mitigate harm to providers, maintain program integrity, and streamline state efforts for implementation.

Our comments address five areas of the proposed rule. In brief, we urge CMS to:

1. Eliminate the disallowance of federal matching for all revenue from a tax whose collections exceed the hold harmless threshold.
2. Allow states more time to submit interim data, no less than 180 days from the effective date of a final rule.
3. Revert to CMS' long-held practice of measuring compliance with established thresholds on the state's own fiscal year rather than requiring states to transition to the federal fiscal year.
4. State expressly that the threshold calculated from data on taxes imposed and in effect on July 4, 2025 is a fixed ceiling, not an ever-decreasing target, apart from the statutory phasedown.
5. Retract the addition of "services of health insurers" as a defined and permissible taxable class, which Public Law 119-21 does not require.