On the eastern plains of Colorado, in a county with less than 6,000 people, Lincoln Health is the only hospital that takes a 75-minute drive. Given the small size of the facility and the small population in the area, the facility is struggling financially.

But Hugo's Colorado-based health system has been partially wandering for more than a decade, thanks to a surprising profile: special taxes for hospitals in the state.

Taxes Lincoln pays taxes help pay for the state’s Medicaid expenses, and because the federal government matches a portion of state spending on Medicaid, it allows Colorado to claim more federal funds. This usually brings more dollars to the hospital. The tax proceeds have also helped Colorado expand Medicaid under the Affordable Care Act to cover 400,000 low-income adults, significantly reducing the number of people on uninsured hospital doors.

Lincoln CEO Kevin Stansbury said last year, Lincoln paid $500,000 in provider taxes but paid more than $3.6 million in taxes from Medicaid, about 15% of its budget.

“These dollars allow me to take care of those who are already enrolled and can even break it instead of losing money,” he said. “With them, it will greatly affect our ability to survive.”

Each state except Alaska uses at least one provider tax to increase its federal Medicaid.

But Republicans who control Congress are looking for Potential cuts in nearly $900 billion in Medicaid To fund the extension of President Trump’s tax cuts and to try to portray provider taxes as malicious, sometimes even treating them as “money laundering.” Lawmakers say they may cut or eliminate provider taxes as part of legislation that will set Mr. Trump’s domestic agenda.

"It's outrageous," Stansbury said.

Medicaid and closely related children’s health insurance programs jointly cover approximately 79 million people with low income and disabilities and are jointly funded by state and federal governments.

Unlimited federal funds and state payments. While the split varies according to the state’s per capita income, federal competitions range from 50% to 77%, with pregnant women and disabled people accounting for the majority of enrollment.

States began using provider taxes in the 1980s to help pay their share and get additional Medicaid funds from the federal government.

Brian Blase, a former Trump health policy adviser who leads the Conservative Paragon Health Institute, believes that provider tax is one of the highest forms of waste in Medicaid. He said states and their hospitals, nursing homes and other providers are not responsible for how to use taxes, reducing incentives for states to control Medicaid spending.

"It's a feature of the program for 40 years, and it's an increasingly bad feature," Brass said.

The Congressional Budget Office estimates that eliminating provider taxes will save the federal government more than $600 billion in a decade.

Rep. Brett Guthrie, chairman of the House Committee that oversees Medicaid, said the provider tax on the menu is a potential cut.

Other changes that Republicans are considering cutting federal Medicaid spending include requiring adult participants to prove themselves eligible and ending higher payments for adults as part of the Affordable Care Act program to expand the program.

More than 20 million adults in 40 states and Washington, D.C. have gained coverage under expansion since 2014.

House Republicans set a deadline for Memorial Day to reach a deal on spending cuts that would help extend the tax break of about $4 trillion, passed during Mr. Trump's first administration and scheduled to expire by the end of the year.

The Office of Government Accountability and the Medicaid and Bargaining Payment and Visiting Committee of the Congressional Advisory Committee raised concerns about provider taxes that effectively and effectively support federal taxpayers’ state expenses. Republicans and Democratic presidents criticized or proposed to cut the use of Medicaid provider taxes - including Trump in his first term, with Barack Obama and Joe Biden as vice presidents.

However, opposition from hospitals, nursing homes and states has been subject to any move to restrict or end arrangements.

Colorado and other states often use the money to maintain or increase payments to providers, while Medicare usually pays less than Medicare, which targets federal programs for 65-year-olds or private insurers.

States have increased provider taxes to help generate federal funds to cope with economic downturns and budgetary constraints.

Last year, Idaho hospitals began paying additional provider taxes to increase salaries for hospitals and family and community providers. The tax comes as the Republican-controlled legislature in Idaho tried to add many conditions that could end the state's Medicaid expansion -- which would also eliminate a key source of federal funding increases.

Brian Whitlock, president and CEO of the Idaho Hospital Association, said funding from hospital taxes helps increase Medicaid payments to 80% of Medicare rates, rather than 60%.

“We still pay every Medicare and Medicaid patient,” he said. “The state realizes that this money helps offset the losses we have caused under Medicaid reimbursement.”

Although hospitals and nursing homes have been the main beneficiaries of provider tax benefits, ambulance services have also been paid and benefited from Medicaid tax. States are increasingly approving Medicaid taxes for private insurers that operate their Medicaid programs to get more federal funds.

California's Medicaid Hospice Tax began in 2009 and is expected to have net income of nearly $9 billion in fiscal 2024-25, accounting for about 5% of the state's Medicaid budget.

In recent years, California has expanded comprehensive Medicaid coverage to immigrants who lack permanent legal status. Federal law prohibits Medicaid from being used for people who have unauthorized coverage of the country, but states can use their own money.

In a speech to congressional staff in April, Blase said California’s strategy is an example of provider tax abuse and claimed that the state effectively launders money to illegally cover people living in the country.

In fact, taxation is a fiscal pressure valve that usually offsets state expenditures. Now, a voting measure passed in November requires that most of California’s taxes be dedicated to increased Medicaid reimbursement to doctors, hospitals and other providers.

Hospital officials and state Medicaid leaders believe the term “money laundering” is an inaccurate way to describe provider taxes because federal law allows them. But Brass said calling taxes “taxes” is misleading, pointing out that most businesses do not usually claim to pay a tax.

Jamie Whitney, chief legal officer of Adelanto Healthcare Ventures, a Texas-based consulting firm, said provider tax is a politically neutral way to help states pay Medicaid and reducing their use would harm their entirety. "This is not a problem with the red state, the blue state," she said.

Colorado is one of more than a dozen states that use provider tax funds to fund the ACA Medicaid expansion. Others include Arkansas, Louisiana, Missouri, North Carolina, Ohio and Virginia.

Colorado implemented its Medicaid provider tax efforts in 2009. In the fiscal year 2024, the state has approximately $5 billion in its Medicaid program funded by provider taxes.

Kim Bimestefer, executive director of the Colorado Department of Health Policy and Financing, which is responsible for Medicaid, said the money could help New York state pay higher Medicaid to hospitals, reducing their need to charge higher fees to private insurers.

Some additional payments depend on hospitals that meet certain quality and patient safety indicators, such as reducing readmission rates after discharge - state officials say improved care for all.

Provider Tax also funded a program where even working residents with disabilities can purchase Medicaid coverage, even if they earn as much as 300% of federal poverty levels and individuals earn as much as $46,950. About 20,000 people participated in the program.

These include Alison Sbrana, 31, of Fort Collins, Colorado, who suffers from a chronic fatigue syndrome and relies on Medicaid to cover long-term home care.

“If the benefits go away, it will be devastating,” Sbrana said. “I will be forced to stop working to keep my income low enough to qualify.”

According to state reports, the state's provider tax also pays a $60 million fund to support rural hospitals, helping them increase telehealth services, recruit surgeons and hire care workers.

Konnie Martin, CEO of San Luis Valley Health, a two-house system in Alamosa, Colorado, said her nonprofit paid $5.4 million in provider tax last year, receiving about $15 million in benefits from higher Medicaid payments and rural grants.

The money could help her hospital maintain obstetrics services so residents don’t have to drive 120 miles to the nearest maternity hospital, she said. She said the entire area would suffer without a birthing center.

“This will also make the community economic development because young people will leave,” she said.

KFF Health News reporter Bernard Wolfson contributed to the report.

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