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Medicaid Provider Tax Case Study

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The “Common Sense Savings Act” HR 4725 and Medicaid Provider Taxes

The US House of Representatives Energy and Commerce Committee voted on March 15th to approve HR 4725, named the Common Sense Savings Act. The bill now goes to the full House for consideration. Among a variety of provisions within the bill, HR 4725 would reduce the Medicaid provider tax hold harmless safe harbor level from 6% to 5.5% starting in fiscal year 2018. In this brief, we provide an explanation of provider taxes and additional information about HR 4725.

Provider Tax Basics

Medicaid programs are financed with a combination of funds from both the federal and state governments, and a state pays anywhere from 26% to 50% of the cost for its Medicaid programming depending on a state’s per capita income. In those states that have opted to expand Medicaid under the Affordable Care Act, the states pay even less than 26% of the total costs because the federal government is paying 100% from 2014-2016 of the costs for the expansion population.

One way states may raise funds for their share of …show more content…
The Medicaid Voluntary Contribution and Provider-Specific Tax Amendments was signed into law to restrict the use of provider donations in financing Medicaid to limit states’ ability to draw down federal Medicaid matching funds. Provider taxes must 1) be broad-based, 2) be uniformly imposed on a class of providers, and 3) they cannot hold providers harmless, meaning providers can’t be guaranteed their tax payment will be paid back. By regulations, there are 19 different types of providers that can be subject to provider taxes, including inpatient and outpatient hospital services, physician services, and nursing facilities. There is a safe harbor tax rate of 6%, meaning when taxes collected are at or below that percentage of patient revenues, the state is considered “safe” from the hold-harmless test. No states operate a provider tax higher than

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