On June 16, 2025, the U.S. Senate Finance Committee released draft legislative language for its version of the “One Big Beautiful Bill Act,” a comprehensive budget reconciliation proposal that includes significant changes to Medicaid financing (the Bill). The May 19 and May 27 editions of Health Headlines covered key changes to the Medicaid program under the House-passed reconciliation Bill. Compared to the House-passed version of the Bill, the Senate draft includes more aggressive provisions affecting Medicaid expansion states, particularly through a phased reduction in the allowable level of provider taxes.
Currently, states may impose provider taxes up to 6% of net patient revenue to help finance their Medicaid programs. Under the Senate proposal, expansion states would see that cap gradually reduced starting in 2027, reaching 3.5% by 2031. Nursing facilities and intermediate care facilities would be exempt from this phasedown. In contrast, the House version would have imposed a moratorium on increasing provider taxes above the existing 6% limit, without further reductions.
The provider tax provision is part of a broader set of Medicaid financing changes in the Bill, originally introduced by the House Energy and Commerce Committee, that are expected to reduce federal Medicaid spending over time. The Senate Finance Committee text includes:
- Moratorium and Reduction in Provider Tax Limits: A moratorium on new provider taxes or increases to existing ones as of enactment. In Medicaid expansion states, the allowable tax level would be reduced by 0.5% annually from 6% to 3.5% by 2031, decreasing by 0.5% annually starting in 2027. Non-expansion states would retain their current provider tax levels.
- Directed Payment Cap: The Bill would direct CMS to cap Medicaid directed payments at 100% of Medicare rates for services delivered in expansion states. Existing payments exceeding this cap could be temporarily grandfathered in 2026, but would phase down by 10% annually starting in 2027. Non-expansion states could continue to pay up to 110% of Medicare rates.
- Uniform Tax Burden Requirement: The Bill would prohibit the approval of health care-related taxes that place a higher burden on Medicaid revenue compared to non-Medicaid revenue. This provision may require structural changes to existing financing arrangements in certain states.
- FMAP Reduction for Certain Populations: In states that offer comprehensive Medicaid coverage to undocumented immigrants after October 1, 2027, the federal medical assistance percentage (FMAP) for the expansion population would be reduced from 90% to 80%. The FMAP for emergency services provided to undocumented adults would be reduced to 50%.
Senate negotiations over these Medicaid and other provisions continue, and further changes are expected before the Bill is considered by the full Senate. In order for reconciliation legislation to be enacted, the Senate proposal will need to be reconciled with the House-passed version, so that both chambers approve identical bill text. We will continue to track developments and provide updates as the legislation advances.
The Senate-version of the Bill is available here.
