No Borders NewsCMS (the Centers for Medicare & Medicaid Services) has published a proposed rule that would revise how it decides whether an “indirect hold harmless” arrangement exists for certain health care-related taxes. These rules matter because they affect what kinds of tax structures states can use while staying within Medicaid requirements.
The proposal is meant to carry out a provision in the “One Big Beautiful Bill Act,” also described here as the “Working Families Tax Cut (WFTC) legislation.” Under current rules, the threshold is generally that a state’s tax revenue collection must be no more than 6% of net patient revenue tied to the covered health care items or services.
Under the proposal, the threshold would generally change to match a percentage of net patient revenue tied to taxes imposed as of July 4, 2025, starting October 1, 2026. The rule also proposes that, starting October 1, 2027, the hold harmless threshold would be phased down in “expansion states.”
CMS also proposes to “sunset” a secondary part of the indirect hold harmless test so that the thresholds set as of July 4, 2025 would act as the maximum permissible level. In addition, the agency proposes adding a new “permissible class” to improve CMS oversight of health care-related taxes.