CMS released the proposed rule “Medicaid Program; Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes” (CMS-2452-P) on July 21, 2026, proposing to replace the current 6% indirect hold harmless threshold with state-specific thresholds based on tax structures enacted and imposed as of July 4, 2025.
The proposal would:
- Formally implement section 71115 of H.R.1, referred to as the Working Families Tax Cut legislation
- Establish a phasedown for expansion states beginning in Federal Fiscal Year 2028
- Discontinue the 75/75 test
- Add “services of health insurers” as a new permissible tax class that is subject to comply with HR1 restrictions
- Create new one-time and ongoing reporting requirements
The CMS Office of the Actuary estimates that the proposed rule, if finalized, will reduce Federal expenditures by $246B over a 10-year period. The CBO originally estimated that the provider tax provisions in H.R. 1 would reduce Federal deficits by $183B.
CMS is accepting public comments on the proposed rule through September 21, 2026.
Sellers Dorsey summarized the proposed rule, including its key provisions and implications for states and providers.
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