CMS Proposes New Provider Tax Thresholds, Phases Out 6% Hold Harmless Rule
CMS released a proposed rule updating Medicaid provider tax policies following the July 2025 reconciliation law. The rule replaces the current 6% indirect hold harmless threshold with state- and provider class-specific thresholds based on taxes enacted as of July 4, 2025, and implements phased reductions for Medicaid expansion states starting in fiscal year 2028. CMS proposes to sunset the current 75/75 compliance test and establishes a new "Services of Health Insurers" provider tax class, bringing existing state taxes on health insurers under federal oversight. Comments are due 60 days after Federal Register publication.
The new health insurer tax class and state-specific thresholds will directly affect MCO premium tax obligations and could alter state financing arrangements that underpin capitation rates and payment adequacy.
Managed Care · Finance
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