On July 21, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule implementing Section 71115 of the One Big Beautiful Bill Act (OBBBA, P.L. 119-21). Section 71115 places a moratorium on new health care related taxes in Medicaid (often referred to as provider taxes), freezes existing provider tax rates, and incrementally reduces maximum allowable tax rates for existing provider taxes in Medicaid expansion states beginning in fiscal year (FY) 2028. The CMS issued initial guidance on Nov. 14, 2025, interpreting Section 71115 of the OBBBA [refer to Washington Highlights, Nov. 21, 2025].
Section 71115 prohibits states, beginning on Oct. 1, 2026, from imposing new or increased provider taxes that were not in effect as of the date of enactment (that is, they were not enacted or imposed as of July 4, 2025). Section 71115 also instructs the CMS to phase down existing provider taxes (those that were enacted and imposed as of July 4, 2025) in Medicaid expansion states by lowering the maximum provider tax rates (currently capped at 6%) by 0.5 percentage points each year, beginning in FY 2028, until the thresholds reach 3.5% in 2032.
The proposed rule defines when a provider tax would be considered “enacted and imposed,” discontinues what is referred to as the 75/75 prong of the indirect hold harmless test, and establishes health insurers as a permissible class for provider taxes, subjecting these taxes to agency oversight. Specific to the definition of enacted and imposed, the CMS proposes a more flexible definition of these terms than the November guidance, allowing a tax to be in effect even if the state is not actively collective tax revenue by July 4, 2025. Comments on the rule are due by Sept. 21.