The Centers for Medicare & Medicaid Services (CMS) issued guidance implementing Sections 71115 and 71117 (PDF) of the One Big Beautiful Bill Act (OBBBA, P.L. 119-21, PDF) related to limits on Medicaid provider taxes used by states to finance the nonfederal share of Medicaid expenditures. Section 71115 prohibits states, beginning on Oct. 1, 2026, from imposing new or increased provider taxes that were not “enacted” or “imposed” as of July 4, 2025. Section 71115 also phases down existing provider taxes (those that were “enacted” and “imposed” as of July 4, 2025) in Medicaid expansion states by lowering the indirect hold harmless threshold by 0.5 percentage points each year, beginning in fiscal year 2028, until the thresholds reach 3.5% in 2032. The guidance defines the terms “enacted” to mean the state or local government has completed the entire legislative process to authorize the tax by July 4. For provider tax waivers that require a waiver of the broad-based and uniformity requirements, the waiver must be approved by July 4. The CMS will consider a tax “imposed” if the state or local government was actively collecting revenue by July 4.
Section 71117 specifies additional requirements for when a provider tax will be considered generally redistributive for purposes of being approved for a waiver of the uniformity requirement. These changes are intended to prohibit states from imposing differential tax rates on providers within a class based on their Medicaid volume. The CMS provides transition periods for states that have existing uniformity waivers from the CMS that do not comply with the new legislative requirements. States that have affected managed care organization taxes will have until the end of the state’s fiscal year ending in calendar year 2026 to ensure their tax complies with the new requirements. States with an affected non-managed care organization provider tax (e.g., a hospital tax) will have a transition period until the end of the state’s fiscal year ending in calendar year 2028, but no later than Oct. 1, 2028.
The CMS noted the guidance is preliminary, and it will address these topics in depth in future rulemaking. For example, the CMS could lengthen the transition periods for provider taxes with uniformity waivers implicated by Section 71117 in an upcoming rule finalizing provisions of a May proposed rule related to the issue [refer to Washington Highlights, May 16].