Provider Taxes Are Critical for Medicaid

When Medicaid funds are cut, children are harmed.

Children make up close to 50% of total Medicaid and CHIP enrollees. Even small adjustments to Medicaid’s state funding sources will result in negative consequences for children and the providers who care for them, including children’s hospitals.

States finance the non-federal share of the Medicaid program through various sources, including taxes on health care providers. Congress is considering restricting states’ use of these taxes to fund their Medicaid programs.

If this happens, states will have to make cuts that would impede access to care for children and their families.

That's why we’re urging Congress to reject policies that would restrict states’ use of provider taxes to ensure states can continue to fund their Medicaid programs.

What is a provider tax?

Provider taxes are health care-related fees, assessments, or other mandatory payments states place on health care providers to help finance the state’s share of Medicaid expenditures.

Almost every state uses at least one provider tax to help finance Medicaid. In fiscal year 2018,17% of state funds came from health care-related taxes.

Provider taxes are often used to fund supplemental payments critical to offsetting low provider reimbursement rates and ensuring access to care. States also use these supplemental payments funded by provider taxes for a range of investments, such as improving behavioral health access and providing home and community-based services for children.

Provider taxes are already subject to federal requirements and oversight. Congress and the Centers for Medicare and Medicaid Services (CMS) have instituted federal requirements for provider taxes to be broad-based and uniform, applying consistently to all providers in a certain category and not limited to providers who participate in Medicaid. Providers cannot be guaranteed to receive Medicaid payments equal to the amount of taxes they pay.

These taxes are not waste, fraud, or abuse.

Why children's health relies on provider taxes

If provider taxes are restricted, most states would not be able to fully finance Medicaid while balancing their budgets. That means they would need to make cuts to the program, which could include reducing eligibility and enrollment, eliminating or limiting benefits, and reducing already low payment rates for providers.

Loss of health care services would be widespread across communities, with fewer resources for essential services, including emergency, trauma, maternal, and behavioral health care services.

As a result, hospitals, health systems, and other providers would likely be unable to continue offering the full range of services, which would impact care for everyone in a community, including children and families.