On the eastern plains of Colorado, in a county of less than 6,000 people, Lincoln Health runs the only hospital within a 75-minute drive. The facility struggles financially, given its small size and the area\u2019s tiny population.<\/p>\n
But for over a decade, the Hugo, Colorado-based health system has remained afloat partially thanks to a surprising source: special taxes on the state\u2019s hospitals.<\/p>\n
The taxes Lincoln pays help cover the state\u2019s Medicaid costs and \u2014 because the federal government matches a portion of what states spend on Medicaid \u2014 enable Colorado to claim more federal money. That generally leads to more dollars for the hospital. The tax proceeds also have helped Colorado expand Medicaid under the Affordable Care Act to cover 400,000 more low-income adults, significantly reducing the number of people showing up at hospital doors without insurance.<\/p>\n
Last year, Lincoln paid $500,000 in provider taxes but netted more than $3.6 million extra from Medicaid, accounting for about 15% of its budget, said Lincoln CEO Kevin Stansbury.<\/p>\n
\u201cThese dollars allow me to care for patients who are enrolled in Medicaid and to break even rather than lose money,\u201d he said. \u201cWithout them, it would significantly impact our ability to survive.\u201d<\/p>\n
Every state except Alaska uses at least one provider tax<\/a> to boost its federal Medicaid dollars.<\/p>\n But Republicans who control Congress are looking for potential cuts in the nearly $900 billion Medicaid program to help fund an extension of President Donald Trump\u2019s tax cuts \u2014 and have sought to portray provider taxes as malicious, sometimes even deriding them as \u201cmoney laundering.\u201d<\/a> Lawmakers say they may curtail or eliminate provider taxes as part of legislation to enact Trump\u2019s domestic agenda.<\/p>\n \u201cIt\u2019s infuriating,\u201d Stansbury said.<\/p>\n Medicaid and the closely related Children\u2019s Health Insurance Program together cover roughly 79 million low-income and disabled people and are jointly financed by states and the federal government.<\/p>\n Federal dollars match state payments with no limit. While the split varies based on a state\u2019s per capita income, the federal match ranges from 50% to 77%<\/a> for children, pregnant women, and people with disabilities, who make up most of the enrollment.<\/p>\n States started using provider taxes in the 1980s to help pay their share and gain additional Medicaid funds from the federal government.<\/p>\n Brian Blase, a former Trump health policy adviser who leads the conservative Paragon Health Institute, sees provider taxes as one of the highest forms of waste in Medicaid. States and their hospitals, nursing homes, and other providers aren\u2019t held accountable for how the tax money is used, reducing incentives for states to control Medicaid spending, he said.<\/p>\n \u201cThis has been a feature of the program for four decades, and it is a feature that is getting worse,\u201d Blase said.<\/p>\n The Congressional Budget Office estimates eliminating provider taxes would save the federal government more than $600 billion<\/a> over a decade.<\/p>\n Rep. Brett Guthrie (R-Ky.), who chairs the House committee that oversees Medicaid, has said<\/a> provider taxes are on the menu for potential cuts.<\/p>\n Other changes Republicans are considering to cut federal Medicaid spending include requiring adult enrollees to prove they\u2019re working as a condition of eligibility, as well as ending higher payments for adults enrolled as part of the Affordable Care Act\u2019s expansion of the program.<\/p>\n Since 2014, more than 20 million nondisabled adults in 40 states and Washington, D.C., have gained coverage under the expansion.<\/p>\n House Republicans have set a Memorial Day deadline to come to an agreement on spending cuts, which would help pay for extending about $4 trillion in tax cuts passed during Trump\u2019s first administration and set to expire at the end of this year.<\/p>\n The Government Accountability Office<\/a> and the Medicaid and CHIP Payment and Access Commission<\/a>, a congressional advisory board, have raised concerns about the provider taxes, which effectively saddle federal taxpayers with state expenses. Republican and Democrat presidents have criticized or proposed curtailing the use of Medicaid provider taxes \u2014 including Trump in his first term<\/a>, Barack Obama<\/a>, and Joe Biden<\/a> while serving as vice president.<\/p>\n But opposition from hospitals, nursing homes, and states snuffed out any move to limit or end the arrangements.<\/p>\n Colorado and other states often use the money to maintain or increase payments to providers, which are often paid less by Medicaid than by Medicare, the federal program primarily for people 65 or older, or private insurers.<\/p>\n States have added provider taxes to help generate federal money to cope with economic downturns and budget constraints.<\/p>\n Hospitals in Idaho last year began paying an additional provider tax to increase pay to hospitals and home- and community-based providers. The tax came as Idaho\u2019s Republican-controlled legislature sought to add many conditions that threatened to end the state\u2019s Medicaid expansion \u2014 which would also eliminate a key source of increased federal funding.<\/p>\n Brian Whitlock, president and CEO of the Idaho Hospital Association, said funding from the hospital tax helps boost Medicaid payments to about 80% of Medicare\u2019s rates instead of 60%.<\/p>\n \u201cWe still lose money on every Medicare and Medicaid patient,\u201d he said. \u201cThe state recognizes that this money helps offset the losses we take under Medicaid reimbursement.\u201d<\/p>\n While hospitals and nursing homes have been the main beneficiaries of provider tax proceeds, ambulance services have also paid and benefited from Medicaid taxes. States increasingly have also approved Medicaid taxes on private insurers that operate their Medicaid programs to gain more federal funds.<\/p>\n California\u2019s Medicaid managed care tax began in 2009 and is expected to generate nearly $9 billion in net revenue for the 2024-25 fiscal period \u2014 or about 5% of the state\u2019s Medicaid budget, according to the California Legislative Analyst\u2019s Office.<\/p>\n In recent years, California has extended full Medicaid coverage to immigrants lacking permanent legal status. Federal law prohibits federal Medicaid dollars from being used to cover people in the country without authorization, but states can use their own money.<\/p>\n At a presentation to congressional staffers in April, Blase cited California\u2019s strategy as an example of provider tax abuse and claimed the state is effectively laundering federal funds to cover people living in the U.S. without authorization.<\/p>\n In practice, the tax has been a kind of fiscal pressure valve generally offsetting state spending. A ballot measure that passed in November now requires that much of the money from California\u2019s tax specifically be used to increase Medicaid reimbursement to doctors, hospitals, and other providers.<\/p>\n Hospital officials and state Medicaid leaders argue the term \u201cmoney laundering\u201d is an inaccurate way to describe provider taxes, since they are allowed by federal law. But Blase said calling the levies a \u201ctax\u201d is misleading, pointing out that most businesses don\u2019t typically advocate to pay one.<\/p>\n Jamie Whitney, chief legal officer for Texas-based Adelanto HealthCare Ventures, a consulting firm, said that provider taxes are a politically neutral way to help states pay for Medicaid and that curtailing their use would harm them all. \u201cThis is not a red-state, blue-state issue,\u201d she said.<\/p>\n Colorado is one of more than a dozen states<\/a> that have funded an ACA Medicaid expansion using provider tax money. Others include Arkansas, Louisiana, Missouri, North Carolina, Ohio, and Virginia.<\/p>\n Colorado implemented its Medicaid provider tax effort in 2009. In the 2024 fiscal year, about $5 billion of the state\u2019s $15 billion Medicaid program was funded by provider taxes, according to the state.<\/p>\n The money helps the state pay higher Medicaid reimbursements to hospitals, which reduces their need to charge higher rates to private insurers, said Kim Bimestefer, executive director of the Colorado Department of Health Care Policy and Financing, which oversees Medicaid.<\/p>\n Some of the extra payments are dependent on hospitals meeting certain quality and patient-safety metrics, such as reducing readmission rates after patients are discharged \u2014 a requirement state officials say improves care for everyone.<\/p>\n The provider taxes also fund a program allowing working residents with disabilities to buy into Medicaid coverage even if their income is as high as 300% of the federal poverty level, or $46,950 for an individual. About 20,000 people are enrolled in the program.<\/p>\n Among them is Alison Sbrana, 31, of Fort Collins, Colorado, who has a type of chronic fatigue syndrome and relies on Medicaid to cover long-term home care.<\/p>\n \u201cIt would be devastating if the benefit went away,\u201d said Sbrana, who works as a researcher and activist for those with the same disorder. \u201cI would be forced to stop working to keep my income low enough to qualify.\u201d<\/p>\n The state\u2019s provider taxes also pay for a $60 million fund to support rural hospitals, helping them add telehealth services, recruit surgeons, and hire paramedics, according to a state report.<\/p>\n Konnie Martin, CEO of San Luis Valley Health, a two-hospital system based in Alamosa, Colorado, said her nonprofit paid $5.4 million in provider taxes last year and gained about $15 million in benefits from higher Medicaid payments and the rural grants.<\/p>\n She said the money helps her hospital maintain obstetrical services, so residents don\u2019t have to drive 120 miles to the nearest maternity hospital. Without the birthing center, the entire region would suffer, she said.<\/p>\n \u201cIt also would gut the economy of the community, because young people will move away,\u201d she said.<\/p>\n KFF Health News senior correspondent Bernard Wolfson contributed to this report.<\/em><\/p>\n\n KFF Health News<\/a> is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF\u2014an independent source of health policy research, polling, and journalism. Learn more about KFF<\/a>.<\/p>\nUSE OUR CONTENT<\/h3>\n