On November 14, 2025, the Centers for Medicare & Medicaid Services (CMS) issued new guidance with some new element about the way it will implement provisions in H.R. 1 — the price range reconciliation regulation also referred to as the One Big Beautiful Bill Act — that limit states’ use of supplier taxes to finance their share of Medicaid prices. Because states are anticipated to be unable to totally exchange revenues raised by supplier taxes with different state revenues to help their Medicaid packages, they must considerably minimize Medicaid eligibility, advantages, and supplier funds, thereby slashing federal Medicaid spending. According to Congressional Budget Office value estimates, these supplier tax provisions would institute gross federal Medicaid spending cuts of $225.7 billion over ten years and increase the variety of uninsured individuals by 1.2 million by 2034.
Nearly all states use taxes and assessments on hospitals, nursing houses, Medicaid managed care plans and different suppliers to lift revenues that finance a portion of their share of Medicaid prices. Provider taxes should adjust to three federal necessities: they have to be uniform and broad-based and can’t maintain taxpayers innocent. Under prior regulation, the “hold harmless” requirement may very well be glad below a secure harbor if the tax didn’t exceed six p.c of internet affected person revenues.
As we have now defined in our complete evaluation of H.R. 1, the price range reconciliation regulation contains three supplier tax restrictions:
- Prohibiting all states from elevating extra state revenues via new supplier taxes or will increase in present supplier taxes upon date of enactment (as of July 4, 2025). This means states are restricted to their present taxes, even when they’ve utilized taxes solely to sure suppliers like hospitals and nursing houses however to not intermediate care services, ambulances and managed care plans. They are additionally confined to the present dimension of their supplier taxes even when they’re now beneath the secure harbor most. As a end result, states might be unable to lift extra revenues to finance enhancements of their Medicaid packages or to avert any price range shortfalls together with throughout an financial downturn or recession. Moreover, they’d now not be capable to use new or elevated supplier taxes to switch revenues from supplier taxes which are now not permitted below H.R. 1 (as described beneath).
- Prohibiting present “uniformity waiver” supplier taxes upon date of enactment (as of July 4, 2025). States could adjust to the federal uniformity requirement for supplier taxes by acquiring a waiver. To obtain federal approval for a waiver associated to a tax, the tax should nonetheless be “generally redistributive” which could be demonstrated by satisfying a mathematical check. (States can also adjust to the broad-based requirement with a waiver.) While leaving that mathematical check in place, H.R. 1 prohibits any tax from being thought of redistributive and thus permissible if it successfully costs decrease charges to suppliers and managed care organizations with much less Medicaid revenues or fewer Medicaid sufferers and better charges to suppliers with extra Medicaid revenues or extra Medicaid sufferers. While the prohibition is essentially focused at sure taxes on managed care organizations, it might implicate taxes on different suppliers together with hospitals. Under the supply, the Secretary of Health and Human Services might present a transition interval for affected states for as much as three fiscal years however isn’t required to take action.
- Reducing the permissible dimension of most supplier taxes however solely in enlargement states (beginning October 1, 2027). Under H.R. 1, in states which have adopted the Medicaid enlargement, the present secure harbor threshold of 6 p.c might be decreased to five.5 p.c in fiscal 12 months 2028, 5 p.c in 2029, 4.5 p.c in 2030, 4 p.c in 2031 after which to three.5 p.c in fiscal 12 months 2032 and thereafter. The decrease thresholds will apply to present taxes and assessments on all supplier varieties together with hospitals, aside from nursing houses and intermediate care services for people with mental disabilities. As a end result, enlargement states should shrink the dimensions of present supplier taxes and thus can have significantly much less revenues obtainable to finance Medicaid over time. States should elevate different taxes akin to earnings taxes or gross sales taxes, minimize different components of their price range like Ok-12 schooling, or, as is way extra doubtless, dramatically minimize their Medicaid packages. Moreover, some present taxes on hospitals that might be topic to those reductions had been used to particularly finance the Medicaid enlargement. These enlargement states will subsequently be at explicit danger of being unable to proceed to finance the Medicaid enlargement transferring ahead.
The steerage contains some new details about how CMS will implement a few of these supplier tax restrictions:
- Clarifying what constitutes an present supplier tax. Under H.R. 1, an present tax isn’t topic to the prohibition towards new or elevated taxes if it has already been enacted and imposed. According to CMS, a tax is taken into account to have been enacted if the state (or native authorities) has accomplished your complete legislative course of wanted to authorize such tax in impact as of July 4, 2025. Adjustments to a tax after July 4, 2025, even when retroactively relevant, wouldn’t be counted as a part of an present tax. A tax is taken into account to have been imposed if the tax was “actually implemented” and the state (or native authorities) “was actively collecting revenue” from such tax as of July 4, 2025. (CMS additionally notes that if a state collects on a delayed schedule per routine assortment or enterprise practices however the tax was usually relevant as of July 4, 2025 however not but collected, that would appear to nonetheless fulfill the “imposed” requirement.) If a tax required a waiver of the uniformity or broad-based necessities, such waiver should have been authorized by CMS by July 4, 2025, as taxes with pending or submitted waivers as of that date wouldn’t be labeled as present taxes. It is our understanding that quite a few states enacted supplier tax will increase simply previous to enactment of H.R. 1. The steerage’s clarification about what constitutes an imposed tax — that the tax should have been actively collected as of July 4, 2025 — could end in a few of these supplier tax will increase being barred below H.R. 1 if these last-minute adjustments will not be thought of to have been applied as of H.R. 1’s enactment. This would even be the case for states enacting last-minute supplier tax will increase that required a uniformity or broad-based waiver that had not but been authorized by CMS as of the date of enactment.
- Setting transition intervals for prohibited uniformity waiver taxes primarily based on supplier sort. CMS signifies that it’s going to present some transition intervals for all prohibited uniformity waiver taxes however will differ the size of such transition intervals by the kind of supplier topic to the taxes. For prohibited taxes on managed care organizations, the transition interval might be via the tip of a state’s present fiscal 12 months (that ends in calendar 12 months 2026). For prohibited taxes on all different suppliers together with hospitals, the transition interval might be via the tip of a state’s fiscal 12 months that ends in calendar 12 months 2028 however no later than October 1, 2028. In most states, the fiscal 12 months ends on June 30th. This will supply all affected states extra time and permit them to proceed to make use of revenues from managed care group taxes to help their Medicaid packages into subsequent 12 months (and for a number of extra years for different prohibited taxes). As famous, whereas H.R. 1 permitted transition intervals for as much as three years, there was no requirement that CMS present any transition interval in any respect.
- Clarifying that states with prohibited uniformity waiver taxes could possibly amend these taxes with out violating the prohibition towards new or elevated taxes. H.R. 1 clearly bars states from imposing new taxes or rising different present taxes to switch misplaced revenues from uniformity waiver taxes that at the moment are prohibited. However, within the steerage, CMS appears to indicate that through the transition intervals, states could possibly alter prohibited taxes in ways in which remove differential charges primarily based on excessive or low Medicaid revenues and affected person quantity and fulfill the H.R. 1 prohibitions towards sure uniformity waiver taxes with out violating the prohibition towards new or elevated taxes. Of course, this is probably not significant if such changes will not be politically viable. They would require elevated tax funds by managed care organizations and suppliers with much less in Medicaid revenues and fewer Medicaid sufferers, as they’d profit much less from better monetary help for Medicaid and can be harmed by Medicaid cuts that may very well be averted by such changes to a lesser diploma than different plans and suppliers. In common, opposition by suppliers much less reliant on Medicaid is why not all states have imposed supplier taxes on each supplier sort and set tax charges on the most secure harbor threshold previous to enactment of H.R. 1 (and why one state — Alaska — has not instituted any supplier taxes).
- Indicating that CMS will nonetheless go forward and finalize a proposed rule associated to uniformity waiver taxes. In the steerage, CMS states that “final policies” associated to uniformity waiver taxes will “depend upon the contents” of a remaining regulation. H.R. 1’s prohibition towards sure uniformity waiver supplier taxes is analogous however not equivalent to the necessities of a proposed rule from the Centers for Medicare & Medicaid Services (CMS) issued on May 12, 2025. In some methods, finalizing this rule would offer better flexibility for states. For instance, the preamble to the proposed rule indicated that some present uniformity waiver taxes would proceed to be permissible akin to these excluding or instituting differential tax therapy for sole neighborhood hospitals or rural hospitals due to the very important roles they play of their communities. Exceptions for these sorts of suppliers weren’t included in H.R. 1 and will not be talked about within the new steerage. On the opposite hand, CMS indicated within the preamble to the proposed rule that the proposed rule’s prohibition would apply to at the very least 8 taxes (7 taxes on managed care plans and one on hospitals) in at the very least 7 states. (It is our understanding that these states are California, Illinois, Massachusetts, Michigan, New York, Ohio and West Virginia, that are all enlargement states.) But H.R. 1’s uniformity waiver tax prohibition may be very broad and will implicate many extra states and taxes. It is feasible with enactment of H.R. 1 that the ultimate rule could make clear that H.R. 1’s prohibition would extra explicitly apply to extra supplier taxes. It might additionally embody different insurance policies that additional limit the power of states to proceed elevating revenues from different present uniformity waiver taxes.