CMS–2452–P; RIN 0938–AV93

Submitted electronically via Regulations.gov

Dear Administrator McIver:

The Arc of the United States appreciates the opportunity to comment on CMS’s proposed rule amending the indirect hold harmless threshold for health care-related (“provider”) taxes. The Arc is the largest national community-based organization advocating for and with people with intellectual and developmental disabilities (IDD) and their families, through nearly 550 state and local chapters.

Medicaid is the foundation of the disability care infrastructure in the United States. It finances home and community-based services (HCBS), personal care, behavioral health services, and the direct support workforce that make community living possible. Provider taxes are not a minor financing detail. Nearly every state uses them, and they fund a significant share of state Medicaid budgets.¹ P.L. 119-21 (H.R. 1. the “One Big Beautiful Bill Act”) has already imposed substantial new restrictions on this longstanding source of Medicaid financing, creating significant cost shifts to states. The proposed rule would go beyond those statutory requirements and further reduce the resources available to states to sustain Medicaid coverage and services. This rule should not be viewed as a technical financing change: CMS itself estimates it will reduce federal Medicaid spending by roughly $246 billion over ten years.² Its effects reach directly into HCBS systems, provider networks, and the people who depend on them.

The Arc urges CMS to pause this rule and implement P.L. 119-21 faithfully without exceeding its restrictions, preserve states’ ability to use permissible provider taxes, retain the longstanding 75/75 compliance test, avoid extending new restrictions to entities and revenue Congress did not address, minimize compliance uncertainty that could push states to cut Medicaid financing pre-emptively, and assess the rule’s cumulative effects on HCBS, providers, and family caregivers before finalizing it.³

I. Provider Tax Restrictions Are an Access-to-Care Issue

States use provider tax revenue to draw down federal Medicaid matching funds. When that financing shrinks, states have a history of cutting the very supports that matter most to people with IDD. Many of the services most critical for people with disabilities, including HCBS, personal care, respite for family caregivers, durable medical equipment, and physical and occupational therapy, are classified as “optional” rather than mandatory under federal law, which makes them an easy target when state budgets tighten. An estimated 86 percent of Medicaid’s optional-service spending funds services for people with disabilities and older adults.⁴

Between 2010 and 2012, when federal Medicaid funding fell, every state and the District of Columbia cut spending in at least one HCBS program, and waiting lists for those programs grew as a result.⁵ States facing renewed financing pressure have several similar options available to them: reducing payments to providers generally; cutting reimbursement rates specifically for HCBS providers, which would deepen the existing shortage of direct support professionals discussed below; serving fewer people and lengthening HCBS waiting lists; or tightening financial eligibility rules so fewer people qualify for coverage at all. Any of these responses can increase reliance on unpaid family caregivers, cause preventable hospitalizations, and increase the risk of unnecessary institutionalization.⁶ The proposed rule will increase state budget hardships and put people with disabilities’ Medicaid coverage and access at risk⁷.

II. The Rule Would Deepen the Direct Support Workforce Crisis

The HCBS system already faces persistent shortages of direct support professionals, largely because reimbursement rates do not support competitive wages. When Medicaid financing shrinks, provider payment rates are often the first target for savings. That worsens workforce shortages, reduces the services people are authorized to receive, and increases pressure on unpaid family caregivers. CMS should weigh the rule’s effect on the HCBS provider network and workforce, not just on aggregate Medicaid expenditures.

III. CMS Should Not Go Beyond What Congress Enacted

In several respects, the proposed rule reaches further than Section 71115 of P.L. 119-21 (the “One Big Beautiful Bill Act”) requires.⁸ Georgetown University’s Center for Children and Families has identified multiple provisions, discussed below, that go beyond section 71115. CMS should not use this rulemaking to impose restrictions Congress did not enact, particularly as states are already absorbing substantial reductions in federal Medicaid funding from other provisions of the same law.

IV. CMS Should Retain the 75/75 Test

The proposed rule would eliminate the second prong of the existing indirect hold-harmless test, known as the 75/75 test, even though Congress did not eliminate or modify this compliance pathway in P.L. 119-21.⁹ Moreover, Congress previously codified the 75/75 regulatory provision in 2006 through Section 403 of the Tax Relief and Health Care Act of 2006, which incorporated into the Medicaid statute the version of 42 CFR §433.68(f)(3)(i) in effect at that time. That regulation included the 75/75 prong. CMS therefore should not eliminate a statutory compliance pathway through this rulemaking.

Removing a longstanding regulatory option could cause states to reduce or restructure provider taxes beyond what the statute requires, as states seek to avoid the risk of federal financial penalties.

The Arc urges CMS to retain the 75/75 test. At minimum, CMS should provide a stronger justification for eliminating it and assess its effects on state financing before finalizing the rule.

V. CMS Should Not Extend Restrictions to Health Insurer Taxes and Should Reconsider Its Compliance and Reporting Approach

The proposed rule would newly classify taxes on health insurers as a Medicaid provider tax class subject to the new restrictions, even when a tax is unrelated to Medicaid and instead funds a state’s insurance department, marketplace administration, or premium subsidies.¹⁰ Congress did not address these taxes in section 71115. CMS should not use this rule to reach state financing mechanisms that Congress did not intend to restrict, and should clearly explain the statutory basis for doing so if it proceeds.

The Arc is also concerned about the proposed retrospective, quarterly-reporting compliance system, under which any determined excess over the applicable threshold would render the entire tax’s revenue impermissible.11 Facing that risk, states may reduce otherwise-permissible taxes simply to avoid compliance uncertainty. That would shrink the state share of Medicaid financing, and the associated federal match, beyond what the statute requires.

Given this, a state could reasonably project its net patient revenue and set a tax rate designed to land at its applicable threshold, only to see that revenue come in lower than expected later in the year, for reasons entirely outside the state’s control, including coverage losses from other H.R. 1 provisions. The same tax collection that looked compliant when set could then retroactively exceed the cap once actual, lower revenue is known, exposing the state to repayment of funds it has already spent or a penalty on the tax’s full value rather than just the overage.12 States would be penalized for a compliance failure they could not have detected in real time.

CMS should adopt a compliance approach that does not create this incentive, including reasonable de minimis allowances, clear definitions, and advance guidance. At minimum, if CMS proceeds with a retrospective compliance framework, it should specify how quickly interim thresholds will be issued to states and should protect good-faith revenue projections from penalty when actual results fall short for reasons beyond a state’s control.

VI. CMS Should Provide Implementation Flexibility and Assess Cumulative Impact

CMS should also reconsider its assumption that the proposed rule will have no effect on Medicaid enrollment. When states face Medicaid budget shortfalls, they may respond not only by reducing provider payments and benefits, but also by reducing eligibility or making it more difficult for eligible individuals to enroll or renew coverage. For people with IDD, such coverage losses can disrupt access to HCBS and other services that are essential to community living.

States need adequate time, clear methodologies, and meaningful technical assistance to comply with these requirements. That includes the opportunity to correct reporting errors, protection against retroactive reinterpretation, and forbearance where states have made good-faith compliance efforts. States should not be forced into premature financing cuts because of uncertainty about how CMS will enforce the new rules.

This rule cannot be evaluated in isolation. States are simultaneously implementing other Medicaid changes under P.L. 119-21, including work requirements and state-directed payment restrictions. Before finalizing this rule, CMS should analyze its combined effect, together with these other changes, on HCBS waiver services, provider reimbursement, workforce retention, family caregiving, HCBS waiting lists, and the risk of institutionalization for people with complex support needs.

Conclusion

The Arc urges CMS to pause this rule and implement P.L. 119-21 faithfully by retaining the 75/75 test, decline to extend restrictions to entities and revenue Congress did not address, adopting a compliance approach that does not pressure states to cut permissible financing pre-emptively, providing adequate implementation flexibility, and evaluating the cumulative consequences for Medicaid beneficiaries, HCBS, providers, direct support professionals, and family caregivers before finalizing this rule.

For people with IDD, these financing decisions can determine whether Medicaid, HCBS and other essential supports remain available, whether providers can continue serving Medicaid beneficiaries, and whether people can live successfully in their homes and communities. Thank you for considering these comments. For more information, contact Ellen Taverna, Director of Federal & State Medicaid Policy, at taverna@thearc.org.

Sincerely,
Kim Musheno
Senior Director of Medicaid Policy The Arc of the United States

 

¹Health and Value Strategies, “CMS Releases Provider Tax Proposed Rule” (Aug. 2026).
²Fact Sheet, “Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes Proposed Rule (CMS-2452-P)” (July 21, 2026).
³ Section 71115 of the One Big Beautiful Bill Act, Pub. L. No. 119-21.
⁴ Medicaid.gov, “Mandatory & Optional Medicaid Benefits,” (August 2026).
⁵Id. (reporting that when federal Medicaid funding declined between 2010 and 2012, every state cut home and community-based services to some degree and waiting lists grew substantially); see also Health Affairs Forefront, “History Repeats: Faced With Medicaid Cuts, States Reduced Support For Older Adults And Disabled” (2025).
⁶ Georgetown University Center for Children and Families (CCF), “CMS Issues New Rule Again Going Beyond H.R. 1 Requirements to Further Restrict State Use of Medicaid Provider Taxes” (July 27, 2026).
⁷Center on Budget and Policy Priorities, “Trump Administration’s New Spending Cuts Package Is Clearly Illegal” (Executive Action Watch, July 21, 2026).
⁸CMS-2452-P, 91 Fed. Reg. 46562, implementing section 71115 of Pub. L. No. 119-21.
⁹LeadingAge, “CMS Medicaid Provider Tax Proposed Rule Implements HR 1’s Hold Harmless Phasedown” (Aug. 2026); State Health and Value Strategies, “CMS Releases Provider Tax Proposed Rule” (Aug. 2026).
¹⁰Georgetown CCF, “CMS Issues New Rule Again Going Beyond H.R. 1 Requirements to Further Restrict State Use of Medicaid Provider Taxes” (July 27, 2026); Center on Budget and Policy Priorities, “Administration Policies Go Beyond 2025 Republican Reconciliation Law, Deepening Its Harm” (Aug. 2026).
¹¹State Health and Value Strategies, “CMS Releases Provider Tax Proposed Rule” (Aug. 2026); Alliance of Safety-Net Hospitals, “CMS Proposes Medicaid Provider Tax Regulation” (July 24, 2026) (warning that, as proposed, the rule would limit states’ ability to fund their Medicaid programs and could lead to dramatic reductions in Medicaid services and payment rates).