When Integrity Meets Access: How the Medicaid Tax Rule May Shape Health Equity

A Technical Fix with Far-Reaching Human Impact

The Medicaid financing rule proposed by CMS in May 2025 is pitched as a guardrail—a measure to ensure that provider taxes do not unfairly target Medicaid services and that federal matching dollars are used appropriately. On paper, it’s about fiscal fairness and regulatory integrity

But in the real world, where compliance and policy decisions ripple through hospitals, clinics, and communities, the question we must ask is: Could this well-intentioned rule come at the cost of access and equity?

As compliance professionals, we don’t just implement policy—we anticipate its effects. And when those effects could deepen disparities or reduce access to care, it’s our job to raise the flag.

How the Rule Aims to Restore Fiscal Balance

CMS wants to prohibit provider tax waivers where Medicaid services are taxed more heavily than non-Medicaid services—even if the state’s statistical test says it's "generally redistributive." The goal is to:

• Prevent abuse of the B1/B2 test.

• Preserve the integrity of federal Medicaid matching funds.

• Standardize enforcement across states.

  
  

This may indeed correct years of financing strategies that pushed the boundaries of federal rules. But what happens to the programs funded by those strategies?

Unintended Consequences on Coverage and Care

1. States May Scale Back Optional Medicaid Benefits

   If the rule reduces available matching funds, states may be forced to balance their budgets elsewhere. That could mean:

   
   

   • Eliminating optional services like dental, vision, or behavioral health.

   • Cutting transportation or postpartum care benefits.

   • Reducing eligibility for certain adult populations.

     
     

   Impact: Populations with complex needs—particularly those with chronic conditions—stand to lose the most.

   
   

2. Provider Reimbursement Could Suffer

   Medicaid provider rates are already low in many states. If financing models are constrained:

   
   

   • States may be less willing or able to increase payments.

   • Safety-net providers may face further margin compression.

   
   

   Impact: Nonprofit clinics and community health centers may reduce hours, services, or even close—particularly in rural or underserved areas.

   
   

3. Immigrant Health Programs at Risk

   Some states use provider tax revenue to support health coverage for noncitizens excluded from Medicaid. This rule could indirectly penalize those programs.

   
   

   Impact: A rollback in health equity initiatives and more emergency room utilization by uninsured individuals.

Equity Isn’t Just a Word—It’s a Budget Decision

Health equity is not achieved solely through legislation—it’s upheld through funding choices. CMS may be right to restore consistency in Medicaid finance. But if that effort leads to coverage gaps, weakened provider networks, or fewer services for marginalized communities, we must ask: is it truly serving the people Medicaid was designed to protect?

What Compliance Professionals Can Do

• Quantify the impact: Work with finance teams to model how provider tax changes affect access and service availability.

• Monitor equity metrics: Are populations already facing disparities bearing the brunt of cuts or restructuring?

• Engage with policymakers: Bring data to the table that shows where flexibility has enabled better outcomes for vulnerable populations.

Final Thoughts

Compliance is more than adherence—it’s stewardship. As CMS enforces a higher standard of Medicaid integrity, we must help ensure that the pursuit of financial fairness doesn’t erode the foundational promise of Medicaid: to provide access to care for those who need it most.

Do you have questions about this blog? Please contact jessicazeff@simplycomplianceconsulting.com.