Many Medicaid programs dependent on multiple provider taxes, fees

Medicaid providers in 32 states were subject to at least three taxes or fees in fiscal year (FY) 2015. States use these taxes to support their program funding obligations. The Kaiser Family Foundation (KFF) reviewed provider taxes by state and found that limiting provider taxes would require states to make program cuts or increase state funding to maintain the level of services currently offered.

Provider taxes

Every state except Alaska reported a FY 2015 provider tax. KFF notes that the federal government is currently considering limits on the use of these taxes, which would shift additional costs to states. Some states would be more affected than others because federal medical assistant percentages (FMAPs), or the federal matching rates, are different depending on a state’s per capita income level. In addition, states use their tax revenue differently, such as to expand eligibility, support rate increases, or mitigate rate cuts.

Proposed changes

States are already prevented from using these tax revenues for Medicaid spending unless the taxes are uniformly imposed, broad-based, and providers are not held harmless from the tax burden. The hold-harmless requirement, which means that states cannot guarantee that the tax revenue will be returned to the taxed providers, has a safe harbor in cases where tax collections are 6 percent or less of net patient revenues. The KFF mentioned that proposed legislation would lower the safe harbor threshold to 5.5 percent of net patient revenue. Nearly three out of 10 provider taxes currently in use are above that threshold.