# 2026-02040: Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole

2026-02040, Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole, is a Federal Register rule from Health and Human Services Department, Centers for Medicare & Medicaid Services published 2026-02-02, effective 2026-04-03; deemed significant under Executive Order 12866 (as of 2026-11-04).

- Canonical: https://policyrisk.com/federal-register/2026-02040
- As of: 2026-11-04
- Plain-text twin of the page above; the HTML and this file carry the same facts.

## Facts
- Document number: 2026-02040
- Title: Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole
- Type: Rule
- Agencies: Health and Human Services Department; Centers for Medicare & Medicaid Services
- Citation: 91 FR 4794
- Published: 2026-02-02
- Effective: 2026-04-03
- Comments close: not stated
- Significant: yes (OIRA_API)
- Touches household money: no
- Regulation identifier numbers: 0938-AV58
- Last updated: 2026-11-04

## 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.

## Abstract

This final rule addresses a loophole in a regulatory statistical test applied to State proposals for Medicaid tax waivers. The test is designed to ensure, as required by statute, that non- uniform or non-broad-based health care-related taxes, authorized under a waiver, are generally redistributive. The inadvertent loophole currently allows some health care-related taxes, especially taxes on managed care organizations, to be imposed at higher tax rates on Medicaid taxable units than non-Medicaid taxable units, contrary to statutory and regulatory intent for health care-related taxes to be generally redistributive. The final rule closes the loophole by finalizing the policies in the proposed rule to add additional safeguards to ensure that tax waivers that exploit the loophole because they pass the current statistical test, but are not generally redistributive, are not approvable. By adding these safeguards, the final rule is also implementing recently added statutory requirements for a tax to be considered generally redistributive.

## Effects PRIA read

- Medicaid funding protected from tax shifts: benefit, high. 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.…
- States barred from exploiting B1/B2 test loophole: benefit, high. 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…
- CMS will disallow impermissible tax revenue from FFP: cost, high. 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 (F…

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## Sources
- [2026-02040 on federalregister.gov](https://www.federalregister.gov/documents/2026/02/02/2026-02040/medicaid-program-preserving-medicaid-funding-for-vulnerable-populations-closing-a-health)
- [2026-02040 as published (PDF)](https://www.govinfo.gov/content/pkg/FR-2026-02-02/pdf/2026-02040.pdf)

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Source: PRIA, https://policyrisk.com/federal-register/2026-02040 (as of 2026-11-04).