CMS Proposes Rules Implementing Provider Tax Caps and Phase-Down Under H.R.1
On July 21, CMS released a proposed rule implementing H.R.1's new limits on healthcare-related taxes that states use to finance Medicaid. The rule bars states from imposing new or increased provider taxes after October 1, 2026, and requires expansion states to phase down the maximum tax threshold from 6% to 3.5% of net patient revenue by FFY 2032, declining 0.5 percentage points annually starting October 1, 2027. Taxes enacted and imposed by July 4, 2025 are grandfathered at current levels. The rule details which taxes qualify for grandfathering, how CMS will calculate hold harmless thresholds, and prohibits taxes imposing higher rates on high-Medicaid volume providers. Provider taxes currently generate nearly $100 billion annually — over a quarter of states' non-federal Medicaid share — with hospital ($61B) and MCO ($28B) taxes representing 90% of the total.
The phase-down will force expansion states to find alternative financing sources or cut Medicaid spending, directly affecting MCO capitation rates, hospital supplemental payments, and state budget structures starting in FFY 2028.
Finance · Managed Care
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