There will be significant political interest in what happens to Medicaid funding as Republicans work to pass a budget and tax bill with their very slim majority. Touching entitlements remains politically risky, and the party is divided on whether any Medicaid cuts would be acceptable heading into an election cycle. At this stage, per-capita caps on federal Medicaid payments to states do not appear to be under serious consideration.
However, even without direct federal cuts, rulemaking changes could materially affect Medicaid-dependent providers. CMS has issued a proposed rule that aims to close what it describes as a Medicaid “tax loophole” that some states have used to inflate federal matching funds while minimizing their own financial commitment. Specifically, CMS is targeting provider tax structures that disproportionately tax Medicaid revenue—such as charging higher rates on Medicaid dollars than on commercial or Medicare equivalents.
States that rely on these mechanisms to support UPL (Upper Payment Limit) or directed payment programs may need to scale back supplemental Medicaid payments if the rule is finalized. That could reduce a key revenue stream for skilled nursing facilities and assisted living providers that participate in waiver programs. For now, it’s unclear what will make it into the final budget or CMS rule, but any changes could have meaningful downstream effects on provider profitability.
One potential positive development for providers: a congressional committee has proposed delaying the implementation of CMS’s minimum staffing mandate for nursing homes by up to 10 years.
