Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole
Published Date: 2/2/2026
Rule
Summary
This new rule stops states from using tricky tax loopholes that let some health care groups pay less tax than they should, protecting Medicaid money for people who really need it. It affects states and managed care organizations by making sure health care taxes are fair and follow the law. The changes kick in on April 3, 2026, helping keep Medicaid funding strong and steady.
Analyzed Economic Effects
3 provisions identified: 2 benefits, 1 costs, 0 mixed.
Medicaid funding protected from tax shifts
You (Medicaid beneficiaries) are less likely to lose Medicaid funding because CMS is closing a loophole that let some States design taxes that shifted costs onto the Federal share. The rule is effective April 3, 2026, and CMS estimates the taxes that have exploited the loophole collected about $24.0 billion per year before this change.
States barred from exploiting B1/B2 test loophole
The rule closes an unintended loophole in the B1/B2 statistical test so States cannot get waivers that approve non-uniform or non-broad-based health care-related taxes that disproportionately tax Medicaid activities (for example, managed care organization taxes). CMS finalized added safeguards and is implementing statutory requirements to ensure waivers are only approved for taxes that are generally redistributive.
CMS will disallow impermissible tax revenue from FFP
If CMS finds a health care-related tax is impermissible (for example, a hold harmless or one exploiting the statistical loophole), CMS will reduce the State's total medical assistance expenditures by the amount of revenue collected from that tax before calculating Federal financial participation (FFP). This treatment is required by section 1903(w) of the Social Security Act.
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