CMS finalizes limits on state provider taxes that fund Medicaid

Modern Healthcare – Thursday, January 29, 2026
By Bridget Early

States will have to find new ways to pay for Medicaid under a regulation the Centers for Medicare and Medicaid Services issued Thursday.

The agency finalized a proposal it made last May to crack down on the provider taxes states assess on hospitals, Medicaid insurers and others to help finance their share of Medicaid spending. The final rule also implements related provisions from the tax law President Donald Trump enacted last July. These taxes generate $24 billion a year for states, according to CMS.

CMS Administrator Dr. Mehmet Oz characterized the regulation as “restoring the federal-state partnership” in a news release. By partially funding Medicaid with provider taxes instead of general funds, states effectively shift a larger percentage of spending onto the federal government. CMS projects the policy will reduce federal expenditures by $78 billion over the next decade.

Fiscal hawks in Washington have long blasted provider taxes, which all states, except Alaska, and the District of Columbia used last year. “With this rule, CMS is ending these inappropriate schemes and ensuring every federal Medicaid dollar is used as Congress intended,” Oz said.

The final rule prohibits higher tax rates on Medicaid-related companies than on other companies, bars new provider taxes and phases out existing ones over the next three years. CMS will offer technical assistance.

States with provider taxes that CMS approved since April 4, 2024, have until the end of 2026; those approved on or before April 3, 2024, have until the end a state’s fiscal 2027; and others by the end a state’s fiscal 2028.

Healthcare industry groups have opposed limits on provider taxes, citing their role allowing states to maintain Medicaid eligibility, benefits and reimbursements.

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