CMS Provider Tax Guidance Places New Pressures on Medicaid Budgets

The Centers for Medicare & Medicaid Services (CMS) issued a letter on November 14, 2025, which provides preliminary guidance on healthcare-related taxes affected by Sections 71115 and 71117 of the Budget Reconciliation Act of 2025 (OBBBA, P.L. 119-21)—the portion of the legislation that focuses on new limitations on provider assessments.

Although this letter does not change federal regulations, it signals an important policy shift that will affect how states fund their Medicaid programs. CMS is working to incorporate these interpretations into rulemaking through the federal notice and comment process.

Health Management Associates (HMA) reviewed the letter specific to these provisions and in the context of other policy and financing changes that are affecting the Medicaid program. This article highlights key clarifications in the letter, the impact of the preliminary guidance on states, and the potential for the guidance to shape Medicaid budgets, financing strategies, and future policy reforms.

Guidance Clarifies the Meaning of “Enacted” and “Imposes”

OBBBA prohibits states from establishing new provider taxes after July 4, 2025. Existing provider taxes may be grandfathered if they meet specific criteria, but most taxes in expansion states—except those on nursing and intermediate care facilities—will be phased down starting October 1, 2027. To qualify for grandfathering, a tax must be both “enacted” and “imposed” by July 4, 2025, as defined by CMS.

CMS interprets enacted and imposed in the following way.

• Enacted: CMS defines enacted based on two components. First, the state or local government must have completed the legislative process to authorize the tax by July 4, 2025. Second, any necessary tax waiver of the broad-based and uniformity requirements must be approved no later than July 4, 2025. This interpretation will present challenges for some states as any pending tax waiver requests and approvals issued after July 4, 2025, will not qualify for grandfathering.
• Imposed: In addition to the enacted requirements, a state must have been actively collecting revenue for the new tax as of July 4, 2025. CMS does appear to allow for instances in which a state’s routine collection and billing practices require the tax be paid on a delayed schedule—a common practice across states.

CMS may continue to approve pending state proposals for new and revised tax structures; however, with the approvals, CMS is also notifying states that any tax structure that is ineligible for grandfathering must be revised by October 1, 2026, to comply with Section 71115 of the OBBBA.

Guidance Sets Preliminary Timeline for Compliance with New Broad-based and Uniformity Requirements in Section 71117

The OBBBA and a separately proposed rule published in May 2025 provide CMS with additional flexibility to tighten requirements for waivers that allow states to impose provider taxes that are not broad-based and uniform (i.e., the tax is levied on providers in a class at a common rate). CMS believes states have used a strategy to pass the prescribed statistical test for these waivers while shifting a disproportionate share of tax burden to high Medicaid providers.

The November 14 letter also includes a preliminary timeline for states to restructure their taxes to comply with the new requirements related to waivers of the broad-based and uniformity tests.

• MCO taxes: States that levy a higher tax rate on Medicaid managed care organizations (MCOs) than on other MCOs must submit a revised tax structure applicable to the state fiscal year (SFY) starting in calendar year (CY) 2026.
• Taxes on all other provider types: States with a similar tax structure on another provider class would need comply by the conclusion of the SFY, ending in CY 2028.

CMS notes that the preliminary timeline for the MCO taxes is the minimum transition period, and the final rule may allow for a transition period of up to three fiscal years.

What It Means for States

All states except Alaska rely on one or more provider tax(es) to fund their Medicaid programs. These additional limitations on the uses of provider taxes—including those now in place—will put a significant strain on state budgets, beginning as early as October 1, 2026. States may need to reduce provider reimbursement and/or enrollee benefits to address these losses.

States and providers should start planning for the changes in revenue now. Strategic planning for provider tax sustainability and close monitoring of upcoming CMS rulemaking are essential.

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The potential impact will vary by state, and each tax structure should be individually assessed to fully understand the implications of this new guidance. HMA has designed, developed, and helped implement provider taxes across the country and is uniquely positioned to support states, MCOs, and providers as they navigate the evolving landscape.

For details about the federal guidance and considerations for your organization, contact our experts below.