August 19 , 2026
Connecting the Dots: Medicaid Program Integrity Enters a New Era of Strategy and Operational Readiness
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SFY 2027 Budgets Signal How States Are Responding to Medicaid and SNAP Funding Provisions in the WFTCA
State fiscal year (SFY) 2027 budgets provide insights into how states are responding to the Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding and operational changes included in the 2025 budget reconciliation legislation, P.L. 119-21, the Working Families Tax Cut Act (WFTCA). Many of the law’s most significant changes will phase in, with full implementation set for 2029. Nonetheless, states are already adjusting their budgets, operational infrastructures, eligibility requirements, and financial strategies to address WFTCA’s new administrative requirements, reductions in federal Medicaid funding, and increased SNAP cost sharing responsibilities, among other reforms.
In its newly updated report, Fiscal Year 2027 Enacted State Budget Overview (subscriber access required), Health Management Associates Information Services (HMAIS), examined state Medicaid agency funding and budget provisions that signal how states are preparing for WFTCA implementation. As of July 31, 2026, all states except South Carolina had enacted their SFY 2027 budgets, and many states that enacted two-year spending plans in 2025 have now approved supplemental budgets. Some states are investing in staffing, eligibility systems, compliance activities, and other infrastructure to maintain coverage and services wherever possible, while others are identifying reductions or alternative funding strategies as they look ahead to more limited federal funding and future budget tradeoffs.
Following is a snapshot of the key trends and state responses to WFTCA policies, which the full report covers in more detail.
Medicaid and SNAP Policy Changes Shaping State FY 2027 Budgets
Major WFTCA provisions affecting state budgets include work/community engagement requirements and more frequent eligibility checks for expansion beneficiaries, an increased state share of SNAP administrative costs, and restrictions on provider taxes and state directed payments.
Medicaid Community Engagement Requirements Drive New State Investments. States that expanded Medicaid eligibility through the Affordable Care Act (ACA) must implement an 80-hour per month community engagement/work requirement for expansion populations by January 1, 2027. These enrollees will also be subject to six-month eligibility reviews.
In anticipation of significant administrative demands, states allocated funding for more staff, IT enhancements, provider and community education, as well as public education to assist individuals subject to the new requirements. States already had been working to meet this requirement before the Centers for Medicare & Medicaid Services (CMS) released the Medicaid Community Engagement Requirement for Certain Individuals Interim Final Rule (CMS-2454-IFC) on June 1, 2026. They may need to adjust their funding requests and implementation strategies to align with the new federal mandates. Examples of state responses include:
- Illinois allocated $55 million to the Department of Human Services to hire 450 additional staff and update eligibility determination systems to implement new eligibility and work requirements for Medicaid and SNAP.
- Kentucky’s biennial budget includes $35 million in SFY 2027 and $11 million in SFY 2028 to implement Medicaid work and community engagement requirements and other related needs.
- Maine’s supplemental SFY 2025–27 budget includes funding to establish 35 eligibility specialist positions as well as other workers to implement work requirements.
States Budget for Higher SNAP Administrative Costs and Error Rate Penalties. States are now responsible for 75% of SNAP administrative costs, up from 50% previously. Beginning in federal fiscal year 2028, the WFTCA imposes a cost sharing requirement on states that have a SNAP payment error rate of more than 6%. In response, many states included funding or budget language to address these new fiscal and administrative responsibilities. Examples include:
- Arizona is allocating $31.8 million for the Department of Economic Security to cover the larger state share of administrative costs, as well as $10.8 million and 88 full-time equivalent (FTE) positions to reduce the SNAP error rate.
- California’s Department of Social Services is set to receive a $30.6 million general fund increase to account for the increase state share of administrative expenses, a nearly $8 million total increase for CalFresh staffing for WFTCA and federal changes and a $4.8 million total increase for enhanced monitoring of CalFresh to meet new error rate requirements.
- Florida is setting aside $4 million for the Department of Children and Families to procure a vendor to help reduce the SNAP error rate.
- Iowa included an increase of $8.7 million for the increased state share of SNAP administrative costs.
- Applying a slightly different approach to the error rate, Alabama’s budget requires the Department of Human Resources to develop a plan that will modify SNAP benefits or eligibility as necessary to cover any penalty imposed on the state in SFY 2028.
States Assess the Impact of Federal Restrictions on Medicaid Financing Tools. The WFTCA freezes current provider tax programs, bars new ones, and requires Medicaid expansion states to phase down the minimum allowable tax rate from 6% to 3.5% by 2032. It also caps state directed payments at 100% of Medicare rates for expansion states and 110% for non-expansion states. Grandfathered payment arrangements will be phased down by 10% annually beginning in 2028.
While this provision will not fully impact states until the next fiscal year, some states are already alerting policymakers and Medicaid organizations that the change will significantly affect their approach to financing the state share of Medicaid costs. States signaling the challenges ahead include:
- New York reported that its assessment tax on managed care organizations (MCOs) is noncompliant with WFTCA.
- California’s MCO tax is also noncompliant and will expire December 31, 2026. The state’s budget does include an WFTCA-compliant tax that will generate $575 million in SFY 2027, $2.3 billion in SFYs 2028 and 2029, and $1.7 billion in SFY 2030.
- Although West Virginia’s final budget includes $877 million from Health Care Provider Tax collections to cover medical services and associated administrative costs, this amount is $46.1 million more than was included in Gov. Patrick Morrisey’s proposed budget. The governor’s proposed budget highlighted how the state will be able to rely less on funds accrued from this tax because of the WFTCA’s limits on provider taxes.
States Increase Investments in Program Integrity and Fraud Prevention
Multiple state budgets also account for the federal government’s crackdown on fraud, waste, and abuse (FWA) in Medicaid and other public benefit programs. Missouri’s Department of Social Services budget includes $17.9 million for the Missouri Medicaid Audit and Compliance Unit to design, implement, maintain, and operate a Medicaid provider enrollment system; $7 million for a case management, provider enrollment, and fraud detection system; and $6.7 million to expand efforts to eliminate fraud through proactive measures using data analytics.
Florida allocated $10.8 million total to combat public assistance fraud, including $2 million in nonrecurring state funds for the Department of Financial Services to competitively procure and implement a public assistance fraud software solution to prevent, detect, and investigate SNAP fraud.
In addition, Rhode Island’s budget establishes an Office of the Inspector General to combat FWA of public funds; Arizona is increasing staff for its Medicaid Fraud Control Unit by four FTE positions; and Colorado included funds to improve the state’s provider directory and conduct a pediatric behavioral therapy audit.
WFTCA Could Reshape Medicaid Financing, Enrollment, and Market Strategy
The WFTCA will reshape Medicaid financing, eligibility, enrollment, and program operations over the next several years, requiring states, health plans, providers, and other stakeholders to adapt to an evolving policy and market landscape. Although many provisions phase in through 2029, SFY 2027 budgets demonstrate that implementation is already underway. New York, for example, projects annual federal funding for Medicaid and the Essential Plan will decline from $77.5 billion in SFY 2027 to $68.5 billion in SFY 2030—a nearly $10 billion annual reduction. California estimates federal community engagement requirements could reduce program costs by $357.6 million in SFY 2027 and approximately $9.6 billion through SFY 2029–30.
HMA Helps Organizations Navigate Medicaid Transformation and WFTCA Implementation
States and other stakeholders will need to continue to adapt as the full effects of WFTCA and other federal priorities take hold. Health Management Associates (HMA) brings the expertise, tools, and insights needed for stakeholders to stay on top of the rapidly changing environment. Contact HMA’s Medicaid experts to discuss how state budget and policy decisions affect your organization’s strategy, operations, and long-term positioning in this evolving healthcare landscape.
The full report is available to HMAIS subscribers through our Medicaid competitive intelligence, strategy, and transformation tool.
August 12 , 2026
SFY 2027 Budgets Signal How States Are Responding to Medicaid and SNAP Funding Provisions in the WFTCA
Why CMS Must Modernize Quality Measurement for Value-Based Care
How should quality measurement evolve as CMS expands value-based care?
As the Centers for Medicare & Medicaid Services (CMS) shifts Medicare toward prospective payment and accountable care, quality measurement must evolve from encounter-based reporting to longitudinal, digital measurement that evaluates patient outcomes across the full care journey. Payment reform and measurement reform must advance together to support value-based care.
Key Takeaways
- CMS is shifting Medicare toward prospective, population-based payment models.
- Traditional encounter-based quality measures were designed for fee-for-service care.
- Digital quality measures should evaluate longitudinal outcomes, prevention, and care coordination.
- Interoperability infrastructure—including Fast Healthcare Interoperability Resources (FHIR) APIs and Qualified Health Information Networks (QHINs)—should enable measurement rather than function solely as a compliance requirement.
- Healthcare organizations need integrated policy, data, analytics, governance, and technology capabilities to succeed in value-based care.
Across the Innovation Center strategy, accountable care initiatives, and the National Quality Strategy,[1] the policy direction is increasingly clear: payment models should reward positive outcomes, seamless care coordination, and high performance across the entire patient journey—not just an isolated activity.
Prospective payment encourages primary prevention, cohesive team-based care, virtual engagement, timely social needs response, and proactive follow-up. However, the quality measurement architecture supporting Merit-based Incentive Payment System (MIPS) Value Pathways (MVPs)[2] and Promoting Interoperability (PI)[3] is not keeping pace. Too much of today’s quality measurement focuses only on encounters, service-oriented events, fixed reporting periods, and discrete measure submissions. As a result, CMS risks building future payment models on measurement logic designed for a traditional transactional healthcare system.
Success in value-based care requires the ability to manage longitudinal data, understand quality measure logic, close care gaps proactively, establish accountable care relationships, and translate digital infrastructure into measurable improvements in quality, outcomes, and cost performance.
The central challenge is not whether quality measurement becomes digital. It is whether digital quality measurement becomes truly aligned with prospective accountability.
CMS Focuses on Outcomes
CMS’s recent strategies point toward coordinated, team-based, accountable care in which clinicians and other entities are responsible for quality, cost, and outcomes over time. This policy shift recognizes that meaningful improvement often happens outside the walls of a triggering encounter: closing a care gap before a visit, preventing deterioration, reconciling medications after a transition, engaging a patient between appointments, or coordinating services across settings.
Prospective payment rewards organizations for managing risk. Quality measurement should therefore follow the same logic. Clinical quality measures used for accountability should evaluate patient-centered outcomes, longitudinal trajectories, prevention and early detection, patient experience, and cross-provider coordination. Technical capability measures matter but should not be confused with patient outcome signals.
A measurement system built for the future must be able to evaluate whether accountable entities are improving patient outcomes over time. It should capture prevention, patient experience, care coordination, and total cost management in ways that reflect real clinical accountability. That is a different task than confirming whether documentation was completed during a denominator-eligible encounter.
dQMs Should Not Simply Digitize Legacy Reporting
Digital quality measures (dQMs) are quality measures expressed as standardized computable specifications, using FHIR and Clinical Quality Language (CQL) to automate measure calculations, reduce manual data abstraction, and provide more timely insights into patient care. Traditional clinical quality measure models were developed when interoperable, electronic clinical data were limited, and manual abstraction was standard practice. Because many still reflect important evidence-based care, those measures should not necessarily be discarded, but technical specifications must be re-evaluated to effectively operate in a healthcare environment in which connected networks, APIs, and broader data liquidity make earlier identification, cross-setting coordination, and proactive outreach the new normal.
MVPs are an important evolutionary step for MIPS. By grouping measures and activities around specialties, conditions, or episodes of care, MVPs can make quality reporting more coherent and clinically relevant than traditional MIPS. However, MVPs do not automatically transform the core logic of quality measurement, nor do they enable the individual measures to function as a cohesive unit. If the measures inside an MVP remain tied to encounter-triggered denominators, legacy numerator-denominator constructs, and retrospective submissions, the program may become more organized without advancing value-based care. Successful administrative reporting is not the same as patient improvement, and any quality measurement system used for prospective population-based accountability should make that distinction explicit.
CMS’s digital quality measurement agenda[4] offers a major opportunity. Digital quality measures can draw from standardized electronic data, support FHIR-based exchange, reduce manual abstraction, and create more timely feedback loops for quality improvement. In a mature interoperable environment, data from EHRs, claims, registries, health information exchanges, devices, and other relevant sources help organizations identify care gaps before visits occur and effectively track outcomes across settings. However, digitization alone is not modernization. A quality measure can be expressed in FHIR-CQL and packaged as a dQM while still carrying assumptions from the previous era of clinical quality reporting. If the underlying logic remains anchored in payment-coded encounters and retrospective documentation, the industry will simply automate yesterday’s measurement model.
Without modernization across both quality measurement and payment, CMS will create an increasingly digital system that remains fundamentally encounter-based. Organizations may invest in coding, documentation, attestation, and measure optimization while remaining only loosely connected to the outcomes that matter to patients and purchasers. The result would be more burden, more opportunities for gaming, and weaker alignment between quality reporting and the goals of value-based care. While this might reduce some reporting friction, it would not support the prospective accountability CMS is advancing.
Promoting Interoperability Is Necessary Infrastructure
The same concern applies to PI. Interoperability is essential to modern accountability, but when PI operates primarily as a scored compliance category—through Certified Electronic Health Record Technology (CEHRT),[5] attestations, fixed reporting windows, and required measure sets—it can become a parallel administrative layer rather than the infrastructure that enables better outcomes. This creates a subtle but important policy risk: CMS may reward technical compliance even when the measurement system does not reliably demonstrate improvements in longitudinal health.
This argument is not anti-interoperability. In fact, prospective payment absolutely depends upon a reliable interoperability infrastructure. QHINs,[6] FHIR APIs, patient access capabilities, health information exchange, e-prescribing, and electronic public health reporting are all foundational to a digital learning health system and to effective longitudinal care management.
The issue is how interoperability is recognized as an integral part of a prospective quality strategy. PI should function less like an independent scoring domain and more like the infrastructure that allows accountable entities to understand their patient populations healthcare needs, efficiently exchange actionable care plans, identify care gaps, incorporate patient-generated data, and continuously evaluate outcomes over time.
Conclusion: Success in Value-Based Care Requires Operational Transformation
CMS is moving toward prospective payment, accountable care, interoperability, and outcome-based accountability, but payment reform and measurement reform must advance together. If CMS continues to place modern payment models on top of legacy measurement logic, the system may become more digital without becoming more meaningful. The next phase of quality strategy should use interoperability not as an end goal, but as the operating foundation for measuring what prospective payment is intended to reward—better outcomes across the full patient journey. For healthcare organizations, the implications are immediate. Success in value-based care will require more than compliance with reporting requirements. It will require the ability to manage longitudinal data, understand measure logic, close care gaps proactively, establish accountable care relationships, and translate digital infrastructure into measurable improvements in quality, outcomes, and cost performance.
As CMS expands accountable care and prospective payment, organizations will need quality measurement systems that evaluate outcomes across the patient journey—not simply document clinical encounters. Digital quality measurement, interoperability, longitudinal analytics, and proactive care management will increasingly become core capabilities for success in value-based care.
HMA’s perspective: Digital quality measurement should not simply automate legacy quality reporting. It should measure whether accountable organizations improve patient outcomes over time.
HMA’s Digital Healthcare Quality Transformation service brings a unique combination of expertise spanning healthcare policy, value-based care strategy, interoperability, data quality, digital quality measurement, analytics, governance, and operational transformation. We work with health plans, providers, ACOs, states, and healthcare innovators to bridge the gap between regulatory compliance and real-world performance, helping organizations build the data infrastructure, governance frameworks, care delivery capabilities, and measurement strategies needed to succeed in an increasingly digital and outcomes-driven healthcare ecosystem. By connecting strategy, technology, and execution, HMA helps clients move beyond compliance and develop the capabilities necessary to deliver measurable improvements in quality, patient outcomes, operational performance, and value.
Frequently Asked Questions
What are digital quality measures (dQMs)?
Digital quality measures (dQMs) use standardized electronic clinical data to evaluate healthcare quality and outcomes. dQMs leverage standards such as Fast Healthcare Interoperability Resources (FHIR) and Clinical Quality Language (CQL) to automate measure calculations, reduce manual data abstraction, and provide more timely insights into patient care. When implemented effectively, dQMs enable healthcare organizations to identify care gaps, monitor performance, and improve patient outcomes using interoperable data.
Why is CMS modernizing quality measurement?
The Centers for Medicare & Medicaid Services (CMS) is modernizing quality measurement to support its transition from fee-for-service reimbursement to prospective, value-based payment models. As Medicare increasingly rewards organizations for improving patient outcomes, managing population health, and coordinating care across settings, quality measurement must evolve beyond encounter-based reporting to evaluate performance across the entire patient journey.
Why are traditional quality measures no longer sufficient?
Many traditional clinical quality measures were designed for a healthcare system built around individual encounters, retrospective reporting, and manual data collection. While many remain clinically important, they often do not fully capture longitudinal care management, prevention, patient engagement, or care coordination. As payment models shift toward population-based accountability, quality measurement must better reflect how organizations improve health outcomes over time.
What is longitudinal outcomes measurement?
Longitudinal outcomes measurement evaluates patient care across time rather than during a single point in time. Instead of measuring whether a required action occurred during an office visit, longitudinal measurement assesses whether healthcare organizations identify care gaps, coordinate services, engage patients, prevent disease progression, and improve health outcomes throughout the patient’s care journey.
How do MIPS Value Pathways (MVPs) support value-based care?
Merit-based Incentive Payment System (MIPS) Value Pathways (MVPs) organize quality measures, improvement activities, and cost measures around specific specialties, conditions, or episodes of care. This approach makes reporting more clinically relevant than traditional MIPS reporting. However, achieving meaningful value-based care also requires measures within MVPs to evolve beyond encounter-based logic and better reflect longitudinal accountability and patient outcomes.
What role does interoperability play in quality measurement?
Interoperability enables healthcare organizations to securely exchange clinical information across providers, health plans, public health agencies, and patients. Standards such as FHIR APIs, Qualified Health Information Networks (QHINs), electronic health records (EHRs), and health information exchanges support more complete patient information, improve care coordination, and provide the data needed for digital quality measurement and population health management.
How are digital quality measures different from electronic clinical quality measures (eCQMs)?
Electronic clinical quality measures (eCQMs) digitized many traditional quality measures by using electronic health record data instead of manual chart abstraction. Digital quality measures (dQMs) build on this foundation by using modern interoperability standards, including FHIR and CQL, to improve data exchange, automation, and scalability. However, simply expressing a measure digitally does not modernize its underlying clinical logic.
Why is prospective payment changing quality measurement?
Prospective payment models reward healthcare organizations for managing the health of patient populations rather than billing for individual services. Because providers are increasingly accountable for outcomes, prevention, care coordination, and total cost of care, quality measurement must evaluate these longitudinal activities instead of focusing primarily on documentation associated with individual encounters.
What capabilities do healthcare organizations need to succeed in value-based care?
Success in value-based care requires more than meeting reporting requirements. Organizations need the ability to integrate longitudinal clinical and claims data, understand quality measure logic, identify and close care gaps proactively, exchange data through interoperable systems, support coordinated care teams, monitor patient outcomes continuously, and use analytics to improve quality, cost, and operational performance.
How can healthcare organizations prepare for the future of CMS quality measurement?
Healthcare organizations can prepare by investing in interoperability, data governance, digital quality measurement capabilities, analytics, and clinical workflows that support proactive care management. Organizations that align policy, technology, quality measurement, and operational transformation will be better positioned to succeed as CMS expands prospective payment, accountable care, and outcomes-based reimbursement.
[1] Centers for Medicare & Medicaid Services. CMS National Quality Strategy. Available at: https://www.cms.gov/medicare/quality/meaningful-measures-initiative/cms-quality-strategy.
[2] Quality Payment Program. MIPS Value Pathways (MVPs). Available at: https://qpp.cms.gov/reporting-requirements/ways-to-report/mvp.
[3] Quality Payment Program. Promoting Interoperability: APP Requirements. Available at: https://qpp.cms.gov/reporting-requirements/ways-to-report/app/promoting-interoperability.
[4] Centers for Medicare & Medicaid Services. Optimal health for All Within Nation’s Health and Long-Term Care Systems: CCSQ FY2025–2028 Strategic Roadmap. March 11, 2026. Available at: https://www.cms.gov/newsroom/blog/optimal-health-all-within-nations-health-long-term-care-systems-ccsq-fy2025-2028-strategic-roadmap.
[5] Centers for Medicare & Medicaid Services. Certified EHR Technology. Available at: https://www.cms.gov/medicare/regulations-guidance/promoting-interoperability-programs/certified-ehr-technology.
[6] Ibid
Early Bird Pricing Ends August 7 for HMA’s National Conference: US Healthcare 2026: Signals, Signs & Flashing Lights
The agenda is now live for US Healthcare 2026: Signals, Signs & Flashing Lights, the Health Management Associates (HMA) national conference, October 5-7, 2026, in New Orleans, LA. Healthcare leaders will join peers, policymakers, innovators, and industry experts to discuss the most significant trends in healthcare, including historic policy and financing changes in Medicaid, program integrity, artificial intelligence (AI), behavioral health transformation, affordability challenges, and emerging care delivery models.
Early bird registration pricing ends August 7!
New This Year: Two Exclusive Preconference Sessions
HMA is offering two special preconference sessions that combine our expert-led learning with valuable networking opportunities.
Attendees will deepen their understanding of, and gain insights into, the federal policy landscape heading into the mid-term elections. This interactive session led by Leavitt Partners, an HMA company, will help attendees understand what’s coming next from Washington, DC, and explore the strategic implications for health plans, providers, state agencies, and healthcare investors.
A preconference session, AI in Healthcare: Moving from Experimentation to Execution, will lead attendees through practical applications of AI across healthcare operations, clinical workflows, analytics, consumer engagement, and administrative efficiency. Discussion will center on topics such as governance, implementation, and risk considerations. Attendees will have the opportunity to learn from peers, share experiences, and build connections in a collegial setting before the main conference begins.
Key Topics Shaping the Healthcare Agenda
The 2026 agenda is intentionally reflective of the issues facing leaders who work in strategy, operations, growth, policy, innovation, quality, and community impact across healthcare sectors.
Highlights include sessions on:
- The future of Medicaid financing, delivery system transformation, and state innovation
- Fraud, waste, abuse, and program integrity priorities across federal and state programs
- AI applications that are reshaping healthcare operations, care delivery, and decision-making
- Rural Health Transformation Programs (RHTPs) and strategies for sustainable community investment
- Behavioral health policy and delivery trends, including the evolving crisis care continuum
- Applied behavior analysis (ABA) therapy at the intersection of behavioral health, access, and oversight
- Life sciences innovation and its impact on payers, providers, and patients
- Coverage transitions, affordability challenges, and changing market dynamics
- Emerging opportunities for collaboration across healthcare, social services, and community-based care
Attendees also will have opportunities to engage in HMA’s popular Coffee Conversations, during which participants can join facilitated discussions on timely topics and exchange ideas.
Review the full agenda, secure your hotel accommodations, and take advantage of early bird savings before August 7, 2026.
Connecting the Dots: What CMS’s Proposed Rule on Provider Taxes Rule Could Mean for States, Marketplaces, and Health Insurers
The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule on July 21, 2026, to implement Section 71115 of the 2025 budget reconciliation act, P.L. 119-21, the Working Families Tax Cut (WFTCA). The proposal calls for introducing significant changes to how states finance Medicaid through healthcare-related taxes.
Though much of the attention has focused on the proposed rule’s implications for Medicaid provider taxes, it also raises important questions for State-Based Marketplaces (SBMs), Section 1332 reinsurance programs, health insurers, and state budget officials. The comment period closes September 12, 2026, giving states and stakeholders a limited window to assess the proposal and provide feedback to CMS.
To better understand the potential implications, Andrea Maresca spoke with Mary Goddeeris, Principal at Health Management Associates (HMA) and Medicaid financing expert; Lina Rashid, Principal at HMA and federal healthcare and Marketplace policy expert; and Zach Sherman, Managing Director for Coverage Policy and Program Design at HMA, and a national expert on ACA Marketplaces and state coverage programs.
Q: What is CMS proposing in this rule, and why is it generating attention among state policymakers and healthcare leaders?
Mary Goddeeris: At its core, the proposal implements Section 71115 of WFTCA, which significantly changes the federal rules governing Medicaid provider taxes. Historically, states could satisfy the federal indirect hold harmless test by using a generally applicable 6 percent threshold. The new law replaces that standard with more restrictive state- and provider-specific thresholds. For many provider taxes in Medicaid expansion states, allowable thresholds will phase down beginning in fiscal year 2028 and fall to 3.5 percent by 2032. The proposed rule implements those statutory changes.
The statutory change has attracted a lot of attention because provider taxes are one of the primary tools states use to finance Medicaid programs. Any changes to those financing mechanisms can have a ripple effect on state budgets, provider payments, managed care financing, supplemental payment programs, and long-term Medicaid strategy. State officials and healthcare leaders are all evaluating the potential fiscal and operational implications.
Q: The proposal is framed as a Medicaid financing rule. Why are stakeholders outside Medicaid also paying attention?
Lina Rashid: One reason is that CMS proposes creating a new permissible provider tax class called “services of health insurers.” CMS indicates this class could include issuers offering individual market coverage, group market coverage, catastrophic plans, short-term limited duration insurance, and certain excepted benefit products (dental and vision only policies), among others. Managed care organizations would generally remain under an existing provider class.
The proposal raises questions because many states already use insurer assessments to fund activities outside Medicaid. These assessments may support State-Based Marketplaces (SBMs), Section 1332 reinsurance programs, or other state affordability initiatives. The proposed rule seems to make these assessments subject to the same provider tax framework and hold harmless restrictions that would be applied to Medicaid financing rules.
The proposal does not clearly answer how broadly CMS intends to interpret these provisions, especially in the cases of taxes that have no direct connection to Medicaid financing. Under a strict framework, it is possible that many states may not meet CMS’s standard, and that they may face financial consequences with respect to the Medicaid program, SBMs, or other initiatives.
Q: How could the proposed rule affect ACA Marketplaces and Section 1332 reinsurance programs?
Zach Sherman: The immediate challenge is the uncertainty with this proposed rule. Many SBMs and reinsurance programs rely on assessments imposed on commercial health insurers. Currently, those assessments generally support Marketplace operations, affordability programs, or reinsurance initiatives rather than Medicaid.
CMS writes that healthcare-related taxes imposed on the new insurer class would be subject to the same hold harmless framework established in Section 71115. The proposal does not, however, clearly state whether insurer assessments used for non-Medicaid purposes would be included. Clarity on this issue is critical because many states depend on these assessments to sustain Marketplace infrastructure and affordability initiatives.
States that already operate SBMs, states considering transition to an SBM, and states supporting reinsurance programs through insurer assessments will want to evaluate how the proposal could affect existing funding models and future flexibility, alongside impacts to Medicaid funding.
Q: For the newly established health insurer permissible class, is the applicable threshold determined by aggregating all taxes imposed on entities within the class, for example including assessments on individual market issuers and catastrophic plans, or is the threshold applied separately to distinct entities within the class?
Rashid: If individual market issuers and catastrophic plans are both included in the same new permissible class (“services of health insurers”), then they would be aggregated across the class to measure if it meets CMS’s threshold, not separately. It would be the combined impact of individual market issuers and catastrophic plans revenue generated from the taxes imposed divided by the applicable revenue base for the health insurer class.
Q: What are the most significant questions states should be considering right now?
Goddeeris: States first need to understand their exposure under the Medicaid provisions themselves. Many states rely heavily on provider taxes to support Medicaid financing. They should be analyzing existing tax structures, estimating future fiscal impacts, and understanding how the phased-down thresholds could affect funding sources over time.
State officials should also consider how this proposal intersects with other major Medicaid policy and budget pressures. States are conducting eligibility redeterminations, implementing new federal requirements, evaluating managed care financing approaches, and managing broader budget constraints. This proposed rule could become another important factor in long-term Medicaid financing decisions and potential driver for significant policy and programmatic changes.
Q: Where should healthcare stakeholders focus their attention while the regulation is pending?
Sherman: Stakeholders should start by assessing whether they could be directly or indirectly affected. States, Marketplaces, health plans, providers, and trade associations may all have different perspectives on implementation questions that remain unresolved.
Rashid: Organizations also should focus on identifying areas where they need additional clarification. In our review, some of the most significant questions involve the scope of the insurer class, how CMS will measure the allowable threshold within each class, the applicability of the rule and hold harmless requirements to non-Medicaid assessments, and how CMS intends to interpret statutory language. Those are all issues stakeholders may want to address in their comments.
How HMA Can Help
Although CMS’s proposal focuses on implementing Medicaid financing reforms enacted by Congress, the effect may extend beyond Medicaid to include insurer assessments, Marketplace funding, reinsurance programs, and state affordability initiatives. Until CMS provides clarification, states and insurers will likely continue evaluating potential operational, fiscal, and policy implications.
HMA Medicaid financing, federal policy, actuarial, and Marketplace experts are helping states, health plans, provider organizations, and other stakeholders evaluate the proposed rule, assess potential impacts, and develop comment strategies.
HMA and its companies, including Wakely and Leavitt Partners, can support strategic planning, design and implementation of SBMs, Medicaid and Marketplace policy development and regulatory compliance, actuarial analysis, data development and reporting. Connect with us to learn how we can help your organization navigate the federal and state policy changes. Access additional insights from the ACA Marketplace team here.
August 5 , 2026
Connecting the Dots: What CMS’s Proposed Rule on Provider Taxes Rule Could Mean for States, Marketplaces, and Health Insurers
Is Your Healthcare Strategy Built for Change?
In this episode of Vital Viewpoints on Healthcare, HMA Regional Director Cara Henley discusses how healthcare organizations can plan for constant policy change without losing focus on their mission. Drawing on decades of experience in Medicaid policy, ACA implementation, and state healthcare transformation, Cara shares practical strategies for successfully transitioning policy upheaval into operational success.
The conversation explores how organizations can prepare for the impacts of One Big Beautiful Bill Act and other Medicaid changes by balancing flexibility with stability, strengthening communication across leadership and frontline teams, and building the resilience needed to thrive through uncertainty.
CMS Proposed Rule (CMS-2452-P) Could Reshape State Health Insurer Assessments—and Put Marketplace and Reinsurance Funding at Risk
What CMS-2452-P Means for State-Based Marketplaces, Section 1332 Reinsurance Programs, the individual market, and Medicaid Financing
On July 14, 2026, the Centers for Medicare & Medicaid Services (CMS) released the Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes Proposed Rule (CMS-2452-P) to implement Section 71115 of the 2025 budget reconciliation legislation, P.L. 119-21, now known as the Working Families Tax Cut.
Although the proposal is primarily intended to reform Medicaid financing and provider taxes, it raises broader questions about whether state assessments on commercial health insurers—including those used to fund State-Based Marketplaces (SBMs), Section 1332 reinsurance programs, and other state affordability initiatives—could become subject to new federal limitations.
HMA’s latest analysis examines the proposed rule, explains the policy changes, and explores the potential implications for states, insurers, Marketplace authorities, and policymakers.
Download the full white paper to understand what CMS is proposing, what remains unclear, and what organizations should be monitoring as the rulemaking process continues.
DOWNLOADExecutive Summary
CMS Proposed Rule CMS-2452-P would establish a new permissible provider tax class for the “services of health insurers.” Although the proposal is framed as implementing Medicaid financing reforms under Section 71115 of the 2025 budget reconciliation legislation, now known as the Working Families Tax Cut, it introduces uncertainty about whether insurer assessments used to finance commercial market programs—including State-Based Marketplaces and Section 1332 reinsurance programs—could also become subject to Medicaid provider tax requirements.
The proposed rule is unclear as to whether these new limitations apply only to taxes associated with Medicaid financing or extend more broadly to commercial insurance assessments. That distinction could have significant implications for states that rely on insurer assessments to support Marketplace operations, affordability programs, and other insurance initiatives.
Key Takeaways
- CMS proposes creating a new permissible provider tax class for services of health insurers.
- The proposal implements Section 71115 of the Working Families Tax Cut Act, which changes the indirect hold harmless thresholds for healthcare-related taxes.
- The rule is primarily focused on Medicaid financing, but its language raises questions about commercial insurer assessments.
- State-Based Marketplaces (SBMs) and Section 1332 reinsurance programs may face uncertainty if existing insurer assessments become subject to the new framework.
- CMS has not clearly explained whether the proposal applies only to Medicaid financing or to all state insurer assessments.
- States, insurers, and Marketplace leaders are expected to seek additional clarification during the public comment process.
What You’ll Learn from This White Paper
This paper explains:
- What CMS Proposed Rule CMS-2452-P would change
- How Section 71115 of the Working Families Tax Cut Act modifies provider tax rules
- Why states are closely evaluating the proposal
- Potential implications for State-Based Marketplaces
- Possible effects on Section 1332 waiver reinsurance programs
- How the proposal compares with CMS’s 2019 Medicaid Fiscal Accountability Regulation (MFAR)
- Key policy questions CMS has yet to answer
- What states, insurers, and Marketplace organizations should monitor moving forward
Frequently Asked Questions
What is CMS-2452-P?
CMS Proposed Rule (CMS-2452-P) would implement Section 71115 of the Working Families Tax Cut Act (WFTCA) by modifying the federal indirect hold harmless framework for healthcare-related taxes and creating a new permissible tax class for services of health insurers.
What does Section 71115 of the WFTCA do?
Section 71115 replaces the historical nationwide indirect hold harmless threshold with new state-specific and provider class-specific limits for healthcare-related taxes used in Medicaid financing.
Could this proposal affect State-Based Marketplaces?
Potentially. Many State-Based Marketplaces are funded through assessments on commercial health insurers. The proposed rule does not clearly explain whether these assessments would become subject to the new provider tax framework.
Could Section 1332 reinsurance programs be affected?
Possibly. Many Section 1332 reinsurance programs rely on insurer assessments to support state funding. If CMS interprets the proposal broadly, future changes to these assessments could face new federal limitations.
Does the proposed rule apply only to Medicaid financing?
This remains one of the most important unanswered questions. The proposal is issued under Medicaid financing authority but introduces a new insurer tax class without clearly defining whether it applies exclusively to Medicaid-related taxes or more broadly to commercial insurance assessments.
Why should insurers and states pay attention?
If finalized as broadly interpreted, the proposal could affect future funding flexibility for State-Based Marketplaces, Section 1332 waiver programs, and other state affordability initiatives financed through insurer assessments.
Why It Matters
State governments increasingly rely on commercial insurer assessments to finance programs that improve health coverage affordability and stabilize insurance markets.
These funding mechanisms support:
- State-Based Marketplace operations
- Section 1332 reinsurance programs
- Individual market affordability initiatives
- Other state programs
If CMS ultimately determines that these assessments fall within the new health insurer tax class established in Section 71115, states may face new constraints on increasing existing assessments or creating new funding mechanisms after July 4, 2025.
Because the proposed rule does not clearly answer this question, states and insurers face considerable policy uncertainty while CMS completes the rulemaking process.
How This Proposal Differs from the 2019 MFAR Rule
CMS previously proposed creating a health insurer tax class in the 2019 Medicaid Fiscal Accountability Regulation (MFAR).
However, today’s proposal differs in one important way. Since Congress enacted Section 71115 of the Working Families Tax Cut Act, the proposed insurer tax class would now operate within a new statutory framework that includes state-specific indirect hold harmless thresholds. As a result, the potential policy implications extend beyond those in the 2019 proposal.
Why HMA’s Analysis Matters
HMA’s policy experts, actuaries, Medicaid financing specialists, and Marketplace consultants work with states, health plans, and public agencies across the country to evaluate federal policy changes and their operational and financial impacts.
The proposed rule leaves several important policy questions unresolved. Understanding its potential implications now can help states, insurers, Marketplace leaders, and policymakers prepare for future regulatory changes.
Download HMA’s full analysis to explore the proposal in greater detail, understand its potential impacts, and identify key questions that may shape the final rule.
Need Assistance?
HMA’s experts advise states, health plans, Marketplace authorities, and other healthcare stakeholders on Medicaid financing, Section 1332 waivers, Marketplace operations, actuarial strategy, and federal regulatory implementation. If you have questions about how CMS Proposed Rule CMS-2452-P could affect your organization, contact one of the report authors to discuss your specific circumstances.
Webinar Replay – Advancing Community Health Through CHWs: Research, Recommendations, and Action
This webinar was held on August 26, 2026.
Community Health Workers (CHWs) play a critical role in connecting communities to trusted health information, services, and resources. In this webinar, Health Management Associates (HMA) presented findings from its research examining how health-related information reaches, is interpreted by, and flows through Community Health Workers in Cook County, Illinois. Participants learned about HMA’s key findings and recommendations for strengthening health information systems, elevating the value of the CHW workforce, and advancing partnerships that support equitable, community-centered care. The session also highlighted opportunities for state agencies, funders, health systems, CHW employers, and community organizations to translate these findings into policy, funding, and practice.
Learning Objectives:
- Describe how health-related information reaches, moves through, and is adapted by Community Health Workers, including where fragmentation, misinformation risks, and service access barriers affect timely and trusted communication.
- Explore how CHWs’ trust-based relationships, cultural and linguistic alignment, lived experience, and community knowledge position them as essential partners in public health communication and community-centered care.
- Identify policy, funding, organizational, and partnership strategies that can strengthen the CHW information ecosystem, including message validation, resource verification, feedback loops, workforce support, and cross-sector coordination.
How CMS’s Proposed MSSP Changes Could Strengthen ACO Growth and Sustainability
Last week’s Health Management Associates (HMA) Weekly Roundup reviewed the Calendar Year (CY) 2027 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program (PFS) proposed rule (CMS-1848-P). That overview highlighted provisions that signal a broader shift in how the Centers for Medicare & Medicaid Services (CMS) is approaching physician payment, primary care, digital healthcare, and value-based care.
This week, our focus turns to the rule’s proposed changes to the Medicare Shared Savings Program (MSSP).
Why CMS Is Proposing MSSP Changes
The proposed updates are designed to address feedback and challenges that accountable care organizations (ACOs) have identified over multiple agreement periods, including benchmark volatility, concerns about rebasing, and questions about whether financial incentives adequately reward ongoing performance.
CMS is seeking to make the program more predictable while continuing to encourage accountability for quality and total cost of care. The proposals also reflect broader agency goals to make the MSSP more attractive to current and prospective ACOs, strengthen primary care, and improve access for beneficiaries in underserved and provider shortage areas. The impact, however, will vary by region and practice.
In a July 27, 2026, paper, CY 2027 MSSP Proposed Rule Analysis: What the Medicare Shared Savings Program Changes Mean for ACOs, Wakely, an HMA Company, explains that the financial effect of certain provisions depends on an ACO’s track, agreement period, historical savings, regional efficiency, risk profile, beneficiary assignment, and provider growth strategy.
Key Proposed Changes to MSSP
Several proposed changes stand out for ACO leaders and provider organizations, including:
- Higher Shared Savings for BASIC Level E ACOs. CMS proposes to increase the BASIC Level E shared savings rate from 50 percent to 60 percent for agreement periods beginning in 2027 or later. This change could make the highest-risk BASIC track more attractive relative to other options and improve financial returns for ACOs that are successfully managing cost and quality performance.
- Changes to Benchmark Methodology. CMS proposes to modify how prior savings are incorporated into future benchmarks. The changes are intended to better recognize organizations that have generated savings while addressing long-standing concerns among providers that benchmark rebasing can diminish incentives for high-performing ACOs over time.
- New Accountable Care Prospective Trend (ACPT) Guardrails. The proposal would establish guardrails and annual recalculation mechanisms for the ACPT to reduce the likelihood that prospective spending projections diverge significantly from actual national cost trends. CMS also proposes applying certain guardrail provisions to payment years 2025 and 2026, potentially before many 2027 provisions take effect. For agreement periods beginning in 2027 or later, CMS proposes a two-sided guardrail and annual recalculation approach designed to reduce the risk that the prospective trend materially diverges from observed national spending trends.
- Qualifying Provider Network Growth Incentive and Quality Reporting Updates. CMS proposes a new incentive to support ACO growth and participation. Provider entities should evaluate how beneficiary assignment interacts with provider expansion. As Wakely’s actuaries note, adding providers does not necessarily translate into meaningful assignment growth or financial benefit. The proposed rule also includes changes to quality reporting policies intended to reduce administrative burden and better align program operations with care delivery realities, particularly in rural and underserved areas and markets with access constraints.
Potential Market-Shifting Effects
The proposed MSSP changes could influence market behavior beyond annual participation decisions. By making changes to BASIC Level E economics, refining benchmark rules, and adding protections against certain trend-related volatility, CMS may encourage more organizations to consider where they want to be on the spectrum of risk -based arrangements.
Regionally efficient ENHANCED ACOs that rebase or enter the program in 2027 could face less favorable benchmark adjustments. Lower-risk ACOs may have less room under the proposed risk-adjusted benchmark cap. Organizations that pursue provider growth without corresponding increases in assigned beneficiaries may not realize the intended network growth incentive. These dynamics could create winners and losers based on local market position, historical performance, patient mix, and each organization’s financial and operational strategy.
How HMA and Wakely Can Help
ACO and provider leaders should use the proposed rule period to assess how the MSSP changes could affect their 2027 strategy and near-term financial projections. Current ACOs should revisit payment year 2025 and 2026 forecasts, evaluate the proposed ACPT guardrail, and model how the 2027 benchmark changes may affect renewal, track selection, and downside risk exposure. Organizations considering MSSP entry should evaluate whether the proposed changes improve the business case for participation and what capabilities would be needed to succeed.
Although the proposals focus on MSSP, their significance extends beyond Medicare ACOs. The changes reflect CMS’s broader effort to strengthen participation incentives, improve benchmark stability, and refine value-based payment models based on operational experience. As a result, the proposals may influence how Medicare Advantage plans, Medicaid programs, and commercial payers structure risk arrangements.
Providers and partners should also prepare comments grounded in data and operational experience. HMA and Wakely help ACOs, providers, health systems, payers, enablement organizations, and investors evaluate the policy, actuarial, operational, and market implications of Medicare accountable care changes. Our teams support MSSP strategy, benchmark and shared savings modeling, risk assessment, provider network analysis, care management design, comment letter development, and implementation planning.
As CMS considers comments and moves toward a final rule, organizations should not wait to understand how the proposed MSSP changes could affect participation decisions, market strategy, and accountable care capabilities. HMA and Wakely can help stakeholders translate the proposed rule into actionable scenarios and prepare for the financial and operational choices ahead.
July 29, 2026
How CMS’s Proposed MSSP Changes Could Strengthen ACO Growth and Sustainability