As Senate Republicans work behind closed doors to finalize President Trump’s sweeping tax proposal popularly called the “One Big Beautiful Bill,” a key Medicaid provision drawing attention is the proposed restriction on provider taxes, a funding tool critical to state Medicaid programs and rural health care providers, including nursing homes.

Provider taxes allow states to tax health care facilities from nursing homes to hospitals, and then return these funds to providers via higher reimbursement rates. The federal government matches these increased payments, effectively expanding Medicaid funding without increasing general state spending. Critics argue that this mechanism is a budget loophole, even though many states rely on it to sustain safety-net providers, especially in rural areas.

Industry advocacy groups, including the American Health Care Association and National Center for Assisted Living (AHCA/NCAL), argue that cutting provider taxes would further strain already underfunded systems.

Several Republican senators have also shown wariness for cutting provider taxes and Medicaid cuts generally, and the bill’s passage in the Senate may hinge on how lawmakers balance cost-saving goals with the political risks of weakening rural and low-income health care access.

The bill will succeed only if all Republican senators vote in its favor, thus avoiding the need for support from Democrats. The GOP holds a 53-47 majority in the Senate, which means that if four Republican senators were to vote against it, it would fail.

And provider taxes could be the thorny issue preventing these Republicans from backing the bill. The current version of the reconciliation bill includes a cap on provider taxes, preventing states from introducing new taxes or raising existing ones.

Some Senate Republicans, including Sen. Josh Hawley (R-Mo.), Sen. Susan Collins (R-Maine), Sen. Thom Tillis (R-N.C.), and Sen. Jerry Moran (R-Kan.), have voiced concerns that these limits could jeopardize hospital finances and trigger rural hospital closures, according to a story in STAT news, which notes Congressional “hallway” interviews with Republican senators.

“This is the big one,” Hawley said earlier, referring to provider tax limits as a top concern for Missouri’s health care system. While he supported Medicaid work requirements included in the bill, Hawley said he opposed benefit cuts as well as other measures that could harm providers serving low-income and rural populations.

The Congressional Budget Office (CBO) projects that provider tax restrictions would impact 400,000 of the 11 million people expected to lose insurance coverage under the bill.

Lawmakers supporting provider taxes warn that the financial fallout from losing provider tax flexibility could lead some states to tighten eligibility rules for Medicaid, further restricting access to health services and nursing homes.

It’s important to note that other provisions such as Medicaid work requirements and the expiration of the Affordable Care Act (ACA) subsidies – which would not impact older adults in nursing homes – would drive most of the coverage losses.

The GOP aims to pass the bill by July 4 through budget reconciliation.