- States use levies on hospitals, others to finance programs
- Taxes seen as way to boost federal matching funds
A congressional bid to trim Medicaid costs by curbing state taxes on health-care providers stands to face pushback from governors over concerns it would shift more of the program’s cost burden to states.
States use taxes on providers such as hospitals and nursing homes to generate state Medicaid funding, which is used to generate federal matching payments to the states. The financing method, which is adopted by 49 states and the District of Columbia, is criticized by some policy observers as a creative maneuver that artificially boosts the amount of funding states receive from the federal government.
Republican members of the House Budget Committee this month circulated a menu of potential spending reform options, one of which would limit Medicaid provider taxes with hopes of yielding about $175 billion in savings.
House Republicans floated the changes for possible inclusion in a reconciliation bill that could help pay for an eventual extension of expiring Trump tax cuts. Lawmakers aim to hash out the details of what will be in the package over the coming weeks.
Other changes include over $2 trillion in cuts to Medicaid through the introduction of a per capita cap, in which states would receive a fixed amount of federal funding on a per-person basis, work requirements, and various other reductions.
Aggressive Reforms Less Likely
However, policy analysts like Matt Salo, former executive director of the National Association of Medicaid Directors, predict that the most aggressive cost-cutting measures like per capita caps will be less likely to make it through the finish line than more modest reforms like reining in provider taxes.
“There will be a very strong motivation to do that. However, I think it will run into equally as aggressive opposition from a lot of very, very, well-connected political stakeholders for whom they simply could not afford to have that money go away like that,” Salo said.
Per capita caps have been singled out by organizations like the National Association of Counties, KFF, and the Center on Budget and Policy Priorities as untenable, largely because the move would force states to set rates well below what’s needed to keep pace with rising health-care costs. Medicaid is already a “lean” program by federal insurance standards, with providers receiving reimbursement at rates over 22% lower than Medicare, based on an analysis of payment rates conducted by the Medicaid and CHIP Payment and Access Commission.
This leaves provider taxes as one of the most likely cost-cutting approaches to make headway with lawmakers, according to Mary Mayhew, CEO of the Florida Hospital Association and former deputy administrator and director of the Center for Medicaid and CHIP Services under the first Trump Administration.
“At the end of the day, regardless of whether it’s a Democratic administration or a Republican administration, there has been a focus on Medicaid spending, at least in terms of how states have drawn down federal funds. I expect that will continue to be part of the equation, Mayhew said.
Economic Impacts
According to Salo, Medicaid provider taxes have drawn criticism from some stakeholders as contributing to the program’s rising costs due to there being no cap on the amount of federal matching funds a state can theoretically accumulate. The Committee for a Responsible Federal Budget estimates that in 2018, the most recent year for which data is available, provider taxes funded 17% of states’ contributions to Medicaid, equaling $37 billion.
“Whether the state pays a million dollars or the state pays $100 billion, as long as it’s doing so appropriately, the federal government has to put in its share,” Salo said.
Although a recent analysis from the Congressional Budget Office determined that ending this financing scheme could save the federal government billions, David Machledt, a senior policy analyst at the National Health Law Program, cautioned that the move would do more to shift the burden of high health-care costs to states than address the root cause of the problem.
“There’s not a lot of places you can cut Medicaid,” he said. “The options are cutting provider rates, which reduces access; cutting eligibility, or cutting optional services. And those optional services are really important—they include long-term community-based care for people with disabilities and other things like that. So it doesn’t end in a good place when you shift the cost onto states,” Machledt said.
State Opposition
Machledt says some of the loudest opposition to a ban on provider taxes could come from Republican-led non-expansion states such as Texas that lean more heavily on provider taxes to fund their Medicaid program. Those states often have greater populations relying on care from a shrinking pool of rural hospitals that are more vulnerable to cuts in Medicaid reimbursement.
For example, a 2020 proposed rule that would have tightened restrictions on provider taxes was eventually pulled after governors expressed concern that the rule would “result in decreased access to care for many vulnerable Americans.”
This time around, Mayhew expects renewed opposition from states to prevent a downstream increase in health-care costs.
“At the end of the day, it’s about how well these Medicaid programs throughout the country are meeting the needs of the individuals who depend on the program,” said Mayhew.
“This is at the heart and should be front and center in all of these discussions,” she added.
Medicaid Health Provider Taxes Targeted for House Budget Cuts
bgov.com
January 29, 2025 2:34 pm
A congressional bid to trim Medicaid costs by curbing state taxes on health-care providers stands to face pushback from governors over concerns it would shift more of the program’s cost burden to states.
States use taxes on providers such as hospitals and nursing homes to generate state Medicaid funding, which is used to generate federal matching payments to the states. The financing method, which is adopted by 49 states and the District of Columbia, is criticized by some policy observers as a creative maneuver that artificially boosts the amount of funding states receive from the federal government.
Republican members of the House Budget Committee this month circulated a menu of potential spending reform options, one of which would limit Medicaid provider taxes with hopes of yielding about $175 billion in savings.
House Republicans floated the changes for possible inclusion in a reconciliation bill that could help pay for an eventual extension of expiring Trump tax cuts. Lawmakers aim to hash out the details of what will be in the package over the coming weeks.
Other changes include over $2 trillion in cuts to Medicaid through the introduction of a per capita cap, in which states would receive a fixed amount of federal funding on a per-person basis, work requirements, and various other reductions.
Aggressive Reforms Less Likely
However, policy analysts like Matt Salo, former executive director of the National Association of Medicaid Directors, predict that the most aggressive cost-cutting measures like per capita caps will be less likely to make it through the finish line than more modest reforms like reining in provider taxes.
“There will be a very strong motivation to do that. However, I think it will run into equally as aggressive opposition from a lot of very, very, well-connected political stakeholders for whom they simply could not afford to have that money go away like that,” Salo said.
Per capita caps have been singled out by organizations like the National Association of Counties, KFF, and the Center on Budget and Policy Priorities as untenable, largely because the move would force states to set rates well below what’s needed to keep pace with rising health-care costs. Medicaid is already a “lean” program by federal insurance standards, with providers receiving reimbursement at rates over 22% lower than Medicare, based on an analysis of payment rates conducted by the Medicaid and CHIP Payment and Access Commission.
This leaves provider taxes as one of the most likely cost-cutting approaches to make headway with lawmakers, according to Mary Mayhew, CEO of the Florida Hospital Association and former deputy administrator and director of the Center for Medicaid and CHIP Services under the first Trump Administration.
“At the end of the day, regardless of whether it’s a Democratic administration or a Republican administration, there has been a focus on Medicaid spending, at least in terms of how states have drawn down federal funds. I expect that will continue to be part of the equation, Mayhew said.
Economic Impacts
According to Salo, Medicaid provider taxes have drawn criticism from some stakeholders as contributing to the program’s rising costs due to there being no cap on the amount of federal matching funds a state can theoretically accumulate. The Committee for a Responsible Federal Budget estimates that in 2018, the most recent year for which data is available, provider taxes funded 17% of states’ contributions to Medicaid, equaling $37 billion.
“Whether the state pays a million dollars or the state pays $100 billion, as long as it’s doing so appropriately, the federal government has to put in its share,” Salo said.
Although a recent analysis from the Congressional Budget Office determined that ending this financing scheme could save the federal government billions, David Machledt, a senior policy analyst at the National Health Law Program, cautioned that the move would do more to shift the burden of high health-care costs to states than address the root cause of the problem.
“There’s not a lot of places you can cut Medicaid,” he said. “The options are cutting provider rates, which reduces access; cutting eligibility, or cutting optional services. And those optional services are really important—they include long-term community-based care for people with disabilities and other things like that. So it doesn’t end in a good place when you shift the cost onto states,” Machledt said.
State Opposition
Machledt says some of the loudest opposition to a ban on provider taxes could come from Republican-led non-expansion states such as Texas that lean more heavily on provider taxes to fund their Medicaid program. Those states often have greater populations relying on care from a shrinking pool of rural hospitals that are more vulnerable to cuts in Medicaid reimbursement.
For example, a 2020 proposed rule that would have tightened restrictions on provider taxes was eventually pulled after governors expressed concern that the rule would “result in decreased access to care for many vulnerable Americans.”
This time around, Mayhew expects renewed opposition from states to prevent a downstream increase in health-care costs.
“At the end of the day, it’s about how well these Medicaid programs throughout the country are meeting the needs of the individuals who depend on the program,” said Mayhew.
“This is at the heart and should be front and center in all of these discussions,” she added.