September 21, 2026
Centers for Medicare and Medicaid Services
Attn: Dr. Mehmet Oz, Administrator of the Centers for Medicare and Medicaid Services
Submitted on regulations.gov
Re: Medicaid Program; Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes
CMS-2452-P; RIN 0938-AV93
On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, we write with brief comments on the Centers for Medicare and Medicaid Services’ (CMS) proposed rule implementing the Medicaid provider tax reforms enacted in the Working Families Tax Cuts, which established new indirect hold harmless thresholds for health care-related taxes. NTU was founded in 1969 to achieve favorable policy outcomes for taxpayers with Congress and the executive branch. Our experts and advocates engage policymakers on important matters affecting taxpayers in a variety of settings, including administrative actions that impact federal health care spending.
Taxpayers have a compelling interest in policies that can help bend the long-term cost curve of federal health care programs. The federal government already spends more than $1.8 trillion1 annually on health care, and, between 2026 and 2056, the share of federal noninterest outlays consumed by major health care programs is projected to rise from 30% to 38%.2 In particular, Medicaid has become one of the fastest-growing drivers of federal spending in recent years. Between 20143 and 2024,4 Medicaid expenditures grew by nearly 88%, and today federal and state spending on the entitlement program approaches $1 trillion annually.
Medicaid’s structure as an open-ended entitlement creates a powerful incentive for states to increase spending, since state Medicaid expenditures automatically trigger federal matching funds. This financing architecture lies at the heart of the provider tax problem. States have figured out they can game the system by taxing providers such as hospitals and then immediately recycling those funds back to the same providers to artificially inflate their reported Medicaid spending. This increased spending on paper, in turn, allows state governments to trigger higher federal matching funds without making meaningful contributions of their own.
Before state governments learned to exploit the provider tax loophole to pad their budgets in the 1980s, Medicaid was a more balanced collaboration, with states footing just under half of total spending. Today, thanks to the uncontrolled growth of the provider tax scheme and new mandates enacted under the Affordable Care Act (a.k.a. Obamacare), the federal government shoulders nearly two-thirds5 of total Medicaid spending. With mandatory spending now accounting for roughly 60%6 of the federal budget, allowing statutory loopholes to keep inflating federal Medicaid spending is a profound disservice to taxpayers.
Thankfully, the Working Families Tax Cuts law addresses this issue head-on. For years, federal rules allowed states to tax qualifying health care providers up to 6% of their net patient revenue and automatically count that money toward their Medicaid share, even when those funds were funneled back to providers. This legislation immediately freezes these existing taxes and gradually lowers that limit to 3.5% for most provider taxes in states that expanded Medicaid. According to the CMS Office of the Actuary, this commonsense reform will save taxpayers approximately $246 billion over the 10-year period from 2026 to 2035.7
NTU strongly supports CMS’s efforts to faithfully implement Congress’s reforms to Medicaid provider taxes. Specifically, we commend CMS for proposing to discontinue the 75/75 test, which is an important loophole states have exploited to keep provider taxes in place even when they exceed the hold harmless threshold. Furthermore, requiring states to provide additional information regarding their provider taxes will give CMS the necessary tools to conduct proper oversight and ensure states are actually abiding by the new hold harmless thresholds going forward.
Thank you for your consideration of these comments, and, should you have any questions on this or any other fiscal or regulatory matter before CMS, we are at your service.
Sincerely and respectfully,
Alexander Ciccone
Policy and Government Affairs Manager
National Taxpayers Union
1 https://www.cbo.gov/publication/62044
2 The Long-Term Budget Outlook Data: 2026 to 2056 | Congressional Budget Office
3 CMS Releases 2014 National Health Expenditures | CMS
5 https://www.kff.org/medicaid/medicaid-financing-the-basics/
6 https://www.pgpf.org/federal-budget-guide/
7 Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes Proposed Rule (CMS-2452-P) | CMS