More on Provider Taxes

February 28, 2025

Below please find more information regarding the use of ‘provider taxes’ in states across the country, from the NY Civil Liberties Union   

In addition, here’s a link to an interview with Bill Hammond at the Empire Center who shares his analysis and views regarding the MCO Tax generally, and the implications for NYS (from October 2024 – before it was approved by CMS):   https://www.empirecenter.org/publications/episode-45-medicaid-money-grab/

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Provider taxes  are a way of increasing federal Medicaid reimbursement where the state taxes healthcare providers and uses the revenue to increase Medicaid payments for those providers. The healthcare providers are happy to pay the tax because they get the money back plus federal Medicaid match, so they are better off. These taxes are subject to federal regulation to ensure that states don’t go too crazy with this revenue stream, but they’re widely used.

Three points about provider taxes:

  1. Provider taxes are extremely common across the country. 49 states have at least one provider tax, and most states have several. Red states depend on these taxes just as much as blue states do.
  2. New York raised $6.7 billion in provider tax revenue in calendar year 2024, including HCRA taxes and health facility cash assessments. Assuming a 50% FMAP, that means New York’s Medicaid program could face a $13.4 billion cut (state + federal funds) if these taxes were fully eliminated. That doesn’t count the MCO tax, which is projected to bring in another $3.7 billion in funding over the next two years. 
  3. “Provider taxes” have been in the news in NY in recent months because of the MCO tax, but the MCO tax is not New York’s only or largest provider tax. New York (like almost every other state) has relied on provider taxes for decades. When our reps vote to eliminate these taxes, they will not be voting to ban some gimmick we invented in 2024, they’ll be voting to eliminate a longstanding pillar of NYS Medicaid funding.

If there is good news at all it is that Republicans only managed to pass a budget resolution by promising moderates that they wouldn’t do major cuts. They do not have a majority for lowering New York’s FMAP or block-granting Medicaid, as of now. The bad news is that many moderate Republicans have gone along with the idea that they can do huge Medicaid cuts by cutting “waste,” and that provider taxes are a form of “waste.” 

Lauri’s Note:  In my opinion and in the opinion of many seasoned advocates across the state, cutting provider taxes may seem more palatable than other ‘menu’ choices on the large list of potential draconian actions being considered by the House, and the impact on services will not be well understood immediately but in the end it is no less harmful than other options currently under consideration and at the end of the day, if the House has it’s way on Medicaid, nothing is really off the table (until it is) in order to hit the target of $880B over 10 years.