Nursing Homes Get a Brief Reprieve on Managed Care Taxes — But Millions in Medicaid Funding Are Still Walking Out the Door

New York, New York — Skilled nursing providers in several states are getting a little more time to benefit from managed care organization taxes, but the financial relief will not last. Federal regulators have confirmed phaseout timelines that will cost facilities millions of dollars annually once the funding window closes.

A final rule issued this month by federal health officials grants a wind-down period to states that approved or expanded MCO provider taxes this year. It is a short-term win — but the long-term math is stark.

In New York, skilled nursing providers had braced for an immediate loss of hundreds of millions in MCO tax revenue. Instead, they will collect the full $445 million the state intended for them this fiscal year. The relief ends there. Starting next year, that figure drops to $289 million — three-quarters of what providers had expected — as regulators cut off collections after next December.

“We implored the importance of allowing New York sufficient time to have its MCO tax in place,” said Stephen Hanse, president and CEO of the New York State Health Facilities Association, who personally advocated for an extended wind-down at a late 2025 healthcare summit that included CMS Administrator Mehmet Oz. Hanse said providers plan to use the lump payments to invest in buildings and workforce. “We are struggling to recruit and retain, and we have two principal union contracts coming up for negotiation in October and December.”

New York is not the only state affected. California, Illinois, Massachusetts, Michigan, Ohio, and West Virginia are all expected to feel the impact as so-called uniformity waivers — which allowed states to tax MCOs and channel the proceeds into Medicaid payments for nursing homes — get phased out under provisions in last year’s federal budget legislation.

A Lifeline With an Expiration Date

Ohio had planned to collect $880 million in MCO taxes in fiscal 2026 and another $869 million the following year. States whose waivers were approved before July 4, 2024, will be permitted to collect through the end of 2027 — putting Ohio in somewhat better shape than New York.

California’s situation is more acute. The state had tripled its MCO tax in recent years, generating $7.5 billion annually, with significant portions supporting healthcare workforce programs. That funding disappears after 2025, and the state’s nonpartisan fiscal advisor has warned that losing this revenue could push more seniors into skilled nursing facilities and drive up costs over time.

For Hanse, the MCO tax phaseout compounds problems that already run deep in New York. Providers are being paid roughly $100 less per day than the actual cost of Medicaid care, and the state’s skilled nursing capital funding has dropped 15% since 2020. “We need to get to the point where Medicaid is covering the cost of care,” he said. “By 2040, the number of adults 85 or over in New York will double. We do not have enough nursing homes in New York right now.”

The bigger picture is that financial pressures facing New York operators are mounting from multiple directions — below-cost Medicaid reimbursement, disappearing MCO tax revenue, and looming union contract negotiations.

More Pressure Ahead

Beyond the MCO tax itself, caps on other types of provider taxes are set to shrink starting in fiscal 2028, falling to a maximum of 3.5% by 2032. That will further reduce federal Medicaid matching funds, putting more pressure on states to cut their own spending even as the nursing home population grows.

Nursing home provider taxes were spared from the larger Medicaid cuts in last year’s budget legislation — a partial win the industry acknowledges. But it did not change the underlying trajectory. The funding tools states relied on to supplement inadequate Medicaid base rates are being systematically unwound, and providers say the math is getting harder to ignore.