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The Centers for Medicare & Medicaid Services (CMS) issued a  on November 14, 2025, which provides preliminary guidance on healthcare-related taxes affected by Sections 71115 and 71117 of the Budget Reconciliation Act of 2025 (, P.L. 119-21)鈥攖he portion of the legislation that focuses on new limitations on provider assessments.

Although this letter does not change federal regulations, it signals an important policy shift that will affect how states fund their Medicaid programs. CMS is working to incorporate these interpretations into rulemaking through the federal notice and comment process.

红领巾瓜报 (红领巾瓜报) reviewed the letter specific to these provisions and in the context of other policy and financing changes that are affecting the Medicaid program. This article highlights key clarifications in the letter, the impact of the preliminary guidance on states, and the potential for the guidance to shape Medicaid budgets, financing strategies, and future policy reforms.

Guidance Clarifies the Meaning of 鈥淓nacted鈥� and 鈥淚mposes鈥�

OBBBA prohibits states from establishing new provider taxes after July 4, 2025. Existing provider taxes may be grandfathered if they meet specific criteria, but most taxes in expansion states鈥攅xcept those on nursing and intermediate care facilities鈥攚ill be phased down starting October 1, 2027. To qualify for grandfathering, a tax must be both 鈥渆nacted鈥� and 鈥渋mposed鈥� by July 4, 2025, as defined by CMS.

CMS interprets enacted and imposed in the following way.

• Enacted:聽CMS defines enacted based on two components. First, the state or local government must have completed the legislative process to authorize the tax by July 4, 2025. Second, any necessary tax waiver of the broad-based and uniformity requirements must be聽approved聽no later than July 4, 2025. This interpretation will present challenges for some states as any pending tax waiver requests and approvals issued after July 4, 2025, will not qualify for grandfathering.
• Imposed:聽In addition to the enacted requirements, a state must have been actively collecting revenue for the new tax as of July 4, 2025. CMS does appear to allow for instances in which a state鈥檚 routine collection and billing practices require the tax be paid on a delayed schedule鈥攁 common practice across states.

CMS may continue to approve pending state proposals for new and revised tax structures; however, with the approvals, CMS is also notifying states that any tax structure that is ineligible for grandfathering must be revised by October 1, 2026, to comply with Section 71115 of the OBBBA.

Guidance Sets Preliminary Timeline for Compliance with New Broad-based and Uniformity Requirements in Section 71117

The OBBBA and a separately  published in May 2025 provide CMS with additional flexibility to tighten requirements for waivers that allow states to impose provider taxes that are not broad-based and uniform (i.e., the tax is levied on providers in a class at a common rate). CMS believes states have used a strategy to pass the prescribed statistical test for these waivers while shifting a disproportionate share of tax burden to high Medicaid providers.

The November 14 letter also includes a preliminary timeline for states to restructure their taxes to comply with the new requirements related to waivers of the broad-based and uniformity tests.

• MCO taxes: States that levy a higher tax rate on Medicaid managed care organizations (MCOs) than on other MCOs must submit a revised tax structure applicable to the state fiscal year (SFY) starting in calendar year (CY) 2026.
• Taxes on all other provider types: States with a similar tax structure on another provider class would need comply by the conclusion of the SFY, ending in CY 2028.

CMS notes that the preliminary timeline for the MCO taxes is the minimum transition period, and the final rule may allow for a transition period of up to three fiscal years.

What It Means for States

All states except Alaska rely on one or more provider tax(es) to fund their Medicaid programs. These additional limitations on the uses of provider taxes鈥攊ncluding those now in place鈥攚ill put a significant strain on state budgets, beginning as early as October 1, 2026. States may need to reduce provider reimbursement and/or enrollee benefits to address these losses.

States and providers should start planning for the changes in revenue now. Strategic planning for provider tax sustainability and close monitoring of upcoming CMS rulemaking are essential.

Connect with Us

The potential impact will vary by state, and each tax structure should be individually assessed to fully understand the implications of this new guidance. 红领巾瓜报 has designed, developed, and helped implement provider taxes across the country and is uniquely positioned to support states, MCOs, and providers as they navigate the evolving landscape.

For details about the federal guidance and considerations for your organization, contact聽our experts below.

The 25^th鈥痑nnual Medicaid Budget Survey conducted by KFF and 红领巾瓜报 (红领巾瓜报), in collaboration with the National Association of Medicaid Directors (NAMD), was released on November 13, 2025鈥�in the report鈥�A View of Medicaid Today and a Look Ahead: Balancing Access, Budgets and Upcoming Changes: Results from an Annual Medicaid Budget Survey for State Fiscal Years 2025 and 2026. 

Following years of significant changes in Medicaid spending, enrollment, and policy during the COVID-19 public health emergency and the subsequent Medicaid unwinding period, state Medicaid programs returned to more routine operations in state fiscal year (SFY) 2025 and were focused on an array of other priorities, including improving access to care or addressing social determinants of health.  

Heading into SFY 2026, however, states were facing a more tenuous and beginning to prepare for another major set of policy changes to the Medicaid program. The 2025 federal budget reconciliation law (OBBBA) includes Medicaid policy changes and reductions in federal funding, though the impacts vary by state. While many of the provisions do not take effect until FY 2027 or later, states are anticipating the upcoming changes, assessing budgetary and programmatic impacts, and preparing for the implementation of multiple and complex policy changes.  

In addition to navigating state budget challenges and implementing new federal policies, the report also addresses other Medicaid program priorities including expanding access, implementing initiatives that target specific populations (e.g., pregnant individuals, justice-involved), continuing delivery system efforts, and improving administrative systems and functions. 

Serving over people living in the United States and accounting for nearly of health care spending (and over half of spending), Medicaid represents a large share of state budgets and is a key part of the overall health care system. 

The report was prepared by Kathleen Gifford, Aimee Lashbrook, and Carrie Rosenzweig from 红领巾瓜报; and by鈥�,鈥�,鈥�,鈥�,鈥痜rom KFF. The survey was conducted in collaboration with NAMD. 

Other links: 
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红领巾瓜报 recently released a report analyzing the impacts of the CareSource JobConnect Program, which provides employment assistance to non-elderly adults enrolled in Medicaid. CareSource is a national, nonprofit managed care organization dedicated to transforming healthcare for those served by government-sponsored health care programs. The program helps individuals prepare for a job search, obtain employment, and succeed in the workplace. 红领巾瓜报 was engaged due to our significant expertise in Medicaid to evaluate the program鈥檚 impacts in 3 of the 6 states where it is currently active: Indiana, Georgia, and Ohio. 红领巾瓜报 conducted an economic impact analysis to assess outcomes for members participating, a cost鈥揵enefit analysis, and a return-on-investment (ROI) assessment, examining the direct and indirect financial benefits to participants, the broader economic impact on the state and healthcare spending, and the total program operation costs incurred by CareSource.

The recently enacted OBBBA law established new federal standards that require states to verify that certain Medicaid enrollees are meeting minimum work or community engagement hours as a condition of continued coverage. Past efforts by states to establish work requirements as a condition of enrollment in Medicaid have resulted in coverage losses because of bureaucratic hurdles that made it difficult for people to comply. A program like CareSource JobConnect can provide support and assistance to those enrolled.

The analysis aimed to help CareSource understand the advantages of this program on those participating, as well as the broader impact on the state鈥檚 economy, and demonstrates potential gains for the state, the job seekers, and CareSource鈥檚 program if more people took advantage of the program鈥檚 benefits.

The report shows significant economic and workforce outcomes, particularly in Ohio and Indiana.

• Ohio led with the highest number of participants and employed workers, generating a return-on-investment of 13:1.
• Indiana showed impressive efficiency, with a strong return-on-investment of 12:1.
• 骋别辞谤驳颈补鈥檚 results were still positive with a 5:1 ROI, but there are opportunities for improvement in employment success and economic return that could improve the success for the Georgia program.

红领巾瓜报 examined direct benefits to those newly employed through the program, including annual earnings and earnings supplements such as tax credits; indirect benefits, such as key elements of social determinants of health like food security and safe and affordable housing; new spending: new worker spending due to employment enhanced by the multiplier (defined as the ripple effect that occurs as new jobholders spend a large portion of their earnings, which creates income for local businesses and nonprofit organizations); the Benefit-to-Cost Ratio: The sum of direct and indirect benefits and the multiplier effect, divided by the cost incurred by the organization making the investment. These things together help determine the full ROI for the program.

As more participants receive job placements over time and their incomes increase, earning supplements will decrease, and other indirect benefits will decrease as participants earn more than the maximum amounts for eligibility.  Each of the three states saw a net gain to their state budgets in the form of state sales and income taxes as members earn more and are able to spend their wages on goods and services.  

	Indiana	Georgia	Ohio
2024 Participants with Employment through the Program	87	28	198
2024 Participants in the Program	220	188	566
Aggregate New Worker Spending	$1,688,001	$537,923	$3,110,462
Multiplier Effect	5	5	5
Aggregate Benefit to Participants and the Local Economy (new worker spending times multiplier)	$8,440,004	$2,689,615	$15,552,308
Estimated Cost Per Participant	$2,938	$2,230	$1,988
Benefit鈥擟ost Ratio	13:1	6:1	14:1
Return-on-Investment	12:1	5:1	13:1

To learn more about the program and to download the whitepaper, click here.

红领巾瓜报 has more than 40 years of experience in helping to shape and improve Medicaid programs, and supports organizations nationwide to develop, implement, and evaluate programs for state agencies, local governments, health plans, and other community-based partner organizations.  Learn more about how 红领巾瓜报 supports Medicaid and our efforts in Housing and Health.

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