CMS issues proposed provider tax rule

The Centers for Medicare & Medicaid Services today released a proposed rule that would update Medicaid provider tax policies included in the July 2025 reconciliation law and change how the agency determines whether certain healthcare taxes comply with federal requirements. States commonly use provider taxes to help finance Medicaid. CMS said the proposed changes are intended to ensure those taxes are not structured in a way that effectively guarantees providers receive their tax payments back.

The proposal would replace the current 6% indirect hold harmless threshold with state- and provider class-specific thresholds based on taxes enacted and imposed as of July 4, 2025, and would implement a phased reduction in allowable thresholds for Medicaid expansion states beginning in fiscal year 2028. The rule proposes revised interpretations of "enacted" and "imposed" taxes as described in CMS' preliminary guidance issued Nov.14, 2025. CMS also proposes to sunset the current alternative "75/75" compliance test and establish a new provider tax class, "Services of Health Insurers," bringing existing state taxes on health insurers under CMS oversight.

Comments are due 60 days after publication in the Federal Register. The AHA is reviewing the rule and will issue a Regulatory Advisory for members.