Federal HR1 would phase down provider taxes, costing Vermont an estimated $113 million by 2033, officials say

Nolan Langall of the Joint Fiscal Office said federal changes in HR1 that freeze and phase down provider-tax authority will materially reduce Vermont's Medicaid funding if left unaddressed. Langall told the briefing that Vermont currently raises about $212 million from provider taxes in fiscal year 2025, with hospitals accounting for roughly 93% of that total, and that his preliminary estimate projects about $113 million less in provider-tax revenue by 2033.

Langall placed the impact in budget context: the state's FY25 total appropriation was about $9.2 billion, of which roughly $2.4 billion was Medicaid. He explained that at Vermont's FMAP (federal medical assistance percentage) the federal share of most Medicaid costs is about 62 percent, meaning state dollars are leveraged by federal matching. "When we cut Medicaid, we cut a dollar out of Medicaid, we lose $2.43 in services," Langall said, illustrating how reductions in state funding reduce total program spending.

Under the rules Langall described, provider taxes are assessments on classes of health-care providers (hospitals, nursing facilities, ambulance services, pharmacy fees and others). Vermont's hospital provider tax is set at 6 percent of net patient revenue; ambulances are taxed at 3.3 percent; a $0.10 per-prescription pharmacy fee raises about $875,000 annually. Langall said FY26 provider-tax receipts are forecast at about $225 million and the total provider-tax estimate used in the briefing was approximately $229 million.

Langall said HR1 will prevent states from creating new provider taxes or increasing existing rates and will begin a federal phase-down between March 2028 and 2032. His preliminary schedule projects a roughly $15 million hit in the first year of the phase-in, about $35 million the second year, and continuing reductions that he currently estimates will total $113 million by 2033. He cautioned these are evolving estimates: "By my current estimates, by 2033, we would have a $113,000,000 less in provider taxes," Langall said.

Beyond the direct loss in provider-tax revenue, Langall emphasized the broader budgetary impact because provider-tax revenues attract federal matching dollars. He estimated that a $113 million general-fund reduction could translate into nearly $300 million less in total Medicaid spending when federal matching is removed. That magnitude, he said, would force policymakers to consider a mix of responses: raising other revenues, cutting services (which would reduce federal match), or shifting general-fund resources from other programs.

State officials in the briefing also noted practical limits on replacing provider-tax revenue. Langall explained some provider types (for example, dentists) are administratively difficult to tax because of large numbers of small private practices without audited financial statements; other classes, like nursing facilities, are assessed on per-bed bases. He warned that choices about preserving services will ultimately be legislative and executive decisions.

The briefing closed with questions about modeling assumptions (Langall said his base assumes ~3% growth in provider-tax base and incremental 0.5% annual reductions during the phase-down period) and a reminder that federal or state policy changes will alter the forecast.

The Joint Fiscal Office said it will continue to refine estimates and provide updated projections as federal implementation details and state policy responses become clearer.