Provider taxes are state assessments on health care providers, which are typically accompanied by the explicit or implicit guarantee of increased Medicaid payments to those same providers. States use the money raised by the provider tax to claim additional federal reimbursement and then they return the providers’ assessment plus some amount to that provider through higher Medicaid payments, which are often supplemental payments. States have political incentives to finance as much of their share of Medicaid finances with accounting gimmicks as possible to minimize the actual amount from the state’s tax base. Provider taxes have significantly expanded over the past two decades and grow overall Medicaid spending by making states less sensitive to the costs of the program. There is a complicated set of federal rules that govern provider taxes, but overall there are serious questions about the transparency of the money flow and the appropriateness, if not legality, of these provider tax arrangements.
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