2026-02040RuleSignificant

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.

Your PRIA Score

Score Hidden

Personalized for You

How does this regulation affect your finances?

Sign up for a PRIA Policy Scan to see your personalized alignment score for this federal register document and every other regulation we track. We analyze your financial profile against policy provisions to show you exactly what matters to your wallet.

Free to start

Key Dates

Published Date
Rule Effective
2/2/2026
4/3/2026

Department and Agencies

Department
Independent Agency
Agency
Health and Human Services Department
Centers for Medicare & Medicaid Services
Source: View HTML

Related Federal Register Documents

Previous / Next Documents

Back to Federal Register

Take It Personal

Get Your Personalized Policy View

Start a Free Government Policy Watch to see how policy affects your household, then upgrade to PRIA Full Coverage for year-round monitoring.

Already have an account? Sign in