On May 31, the Kaiser Family Foundation released a brief reviewing states’ use of Medicaid provider taxes and outlining recent proposed changes in federal rules governing their structure.  Under current law, states may enact provider taxes to help finance their Medicaid funding obligation.  The brief offers a state-by-state breakdown, explaining which states use Medicaid provider taxes and to which services the taxes are applied.  The authors note that limiting states’ ability to apply provider tax revenue toward their share of Medicaid spending would limit access to federal matching funds and, in turn, lower federal spending obligations by reducing flexibility in state Medicaid budgets.

From the report:

Since its enactment in 1965, Medicaid has been a joint financing partnership between the states and the federal government. Under this partnership, the states and the federal government share in the cost of providing health and long-term care services to low-income Americans. State participation in Medicaid is voluntary; those states that elect to participate (as all now do) are guaranteed federal financing for a percentage of the cost of their programs specified by a statutory formula. Under that formula, the federal government pays at least half of the costs and as much as three quarters in some states. States are responsible for the remainder of the costs.  

Full Report: Medicaid Financing Issues: Provider Taxes (PDF | 789 KB)

Kaiser Family Foundation. (2011). Medicaid financing issues: provider taxes.