Nursing home budgets could tighten by 2028 because states will have less federal Medicaid money to pay them, even though nursing-home taxes are exempt. Medicaid covers a large share of long-term nursing home care, so frozen state revenues and smaller supplemental payments can mean flat or lower payment rates. A provider tax is a state tax on health providers, such as hospitals, nursing homes, or managed-care plans. States use the revenue to fund their share of Medicaid and draw federal matching dollars.
Medical information disclaimer: This article is for general educational purposes only and does not provide medical advice, diagnosis, or treatment. Always consult a physician or other qualified health professional about symptoms, medications, tests, or treatment decisions.
Table of Contents
- What is changing for provider taxes?
- Why are nursing homes exposed if they are exempt?
- What will the squeeze look like by 2028?
- What can families planning dementia care do now?
- Frequently Asked Questions
What is changing for provider taxes?
The One Big Beautiful Bill Act, signed July 4, 2025, freezes each state's existing provider-tax rates. It also bars new provider taxes and rate or base increases to fund Medicaid, according to Forvis Mazars analysis.
A July 21, 2026 proposed rule would carry out that law by replacing the long-standing 6% safe harbor with caps tied to taxes in place on July 4, 2025. In Medicaid-expansion states, allowable non-exempt taxes step down to 5.5% in federal fiscal year 2028, then fall by 0.5 points yearly to 3.5% by 2032, according to Georgetown Center reporting.
Why are nursing homes exposed if they are exempt?
Taxes on nursing facilities are exempt from that phase-down, so those taxes can remain at current caps. The pressure comes through state budgets rather than a direct cut to the nursing-home tax.
That budget link is broad. Provider taxes supply a median 18% of states' non-federal Medicaid share, and 45 states tax nursing facilities, according to KFF survey findings. Nursing homes depend heavily on Medicaid, which paid 44% of long-term institutional-care costs in 2023, according to KFF facility data.
What will the squeeze look like by 2028?
States facing lower hospital and managed-care tax revenue must fill the gap with general funds or cut Medicaid payments. Many states will face that choice because 31 of 51 Medicaid programs had non-exempt taxes above 3.5% in mid-2025.
Federal estimates point to a large loss of matching funds over time. The result for nursing homes is less room for rate increases and smaller state-directed or supplemental payments by 2028. Flat rates can squeeze funds for aides, dementia programming, food, activities, and building upkeep.
What can families planning dementia care do now?
Families cannot change state tax policy, but they can ask how a home is handling tight payments. Payment stress often shows first in staffing, consistency, and daily care.
- Ask about aide staffing, turnover, and weekend coverage on the memory-care unit
- Ask whether dementia training, activities, and behavioral support have changed
- Tour twice, including an evening or weekend, and watch staff response times
- Ask the business office whether the home accepts Medicaid and if that policy is changing
- Document care concerns in writing and raise them with the care-plan team promptly
Frequently Asked Questions
Will Medicaid stop paying for nursing home care?
No. The change limits how much provider-tax revenue states can use to draw federal funds. States must then use more general funds or reduce payments.
Does the nursing-home exemption protect my loved one's home?
It protects the nursing-home tax rate from the phase-down. It does not protect the home from statewide shortfalls, frozen tax growth, or lower Medicaid rates.
