Senate Republicans are pushing a proposal to scale back Medicaid provider taxes to help fund a sweeping budget package – but nursing homes and intermediate care facilities would be exempt from the cuts.

A draft from the Senate Finance Committee proposes gradually reducing the maximum provider tax rate in Medicaid expansion states from 6% to 3.5% between 2027 and 2031. The policy shift aims to generate significant federal savings by curbing Medicaid spending growth, a long-standing conservative goal.

Most states use provider taxes to fund Medicaid, relying on matching federal dollars that can reach up to 90%, with reduction or caps on provider taxes not being favored by the nursing home sector.

This proposed move by GOP Senators is a key departure from the House-passed bill – which would have frozen the provider tax cap at 6% for all providers. The Senate plan protects nursing homes from the rollback. That distinction could shield nursing home operators from financial strain while shifting cost pressures to other health care sectors.

Michael Bassett, senior vice president of government relations at the American Health Care Association and National Center for Assisted Living (AHCA/NCAL), welcomed the move in an emailed statement to Skilled Nursing News.

“We appreciate the Senate’s recognition that nursing homes and intermediate care facilities need to be shielded from potential provider tax reductions, a clear signal that this Medicaid program is essential to funding critical care for our nation’s seniors and individuals with disabilities,” Bassett said, adding, however, “States continue to struggle with their Medicaid budgets, and we will continue to work with Congress as this process moves forward.”

‘A smaller Medicaid funds pie’

Mollie Gurian, vice president, policy and government affairs at LeadingAge, the association of nonprofit providers of aging services, told SNN that nursing homes still stand to be negatively affected even if they are exempt from the Senate proposal on provider taxes. After all, provider taxes are but one mechanism by which states can collect federal funds to support their Medicaid programs.

“Starting in 2027, for expansion states, the hold harmless threshold decreases by 0.5% a year until 2031 when the hold harmless threshold would be 3.5%. While nursing homes and intermediate care facilities are excluded from this provision, allowing states to maintain provider taxes on them to between 3.5% and 6%, it would be incorrect to conclude that that exclusion means nursing homes will not be harmed financially as a result,” she said.

Some states use taxes on certain health care providers to help fund nursing facility payment programs, including quality and access incentives. All provider tax revenue is pooled into a single state funding source, which supports various services like nursing homes and home- and community-based care, Gurian explained.

“Therefore, if one stream of money is reduced – and others hold steady – the whole amount is decreased as well,” Gurian said.

Proposed changes to provider taxes in the Senate aim to reduce federal spending. As a result, states would receive less federal Medicaid funding, forcing them to make tough budget choices: cutting services, lowering provider payments, or raising new state revenues.

“In states where provider taxes will see reductions, all providers will be competing for pieces of a smaller Medicaid funds pie,” she said.

The Senate proposal is already stirring opposition from moderate Republicans, particularly those representing rural states concerned about the impact on hospitals. Some lawmakers warn that lowering the cap would be seen as a Medicaid cut, potentially threatening bipartisan support.

While negotiations continue, Senate Republicans are under pressure to find savings that avoid touching Medicare, leaving Medicaid reforms like the provider tax cap as one of the few options still on the table.