House Passes Budget Reconciliation Bill Out of Committee and Targets MCO Tax for Elimination

The Situation Report | May 19, 2025

On Sunday night, the House Budget Committee passed the Budget Reconciliation Bill out of Committee with plans to bring it to the floor for a vote by the end of the week.  This past week, various House Committees passed their portion of the Reconciliation bill that focuses on significant budget cuts across most domestic spending programs, tax cuts and increased spending on defense and veterans’ health.

In specific, the House Energy and Commerce Committee passed a bill that will cut approximately $625 billion in from Medicaid by implementing work requirements for able-bodied adults, cutting reimbursement for care provided to illegal immigrants and finding waste fraud and abuse. Combined with cuts made in the Ways and Means Committee that could reduce access for certain immigrants that are here lawfully through New York’s Essential Plan, New York could lose up to $11 billion annually for its Medicaid Program. While none of the cuts directly target home care, the ripple effects could be felt as the State will need to either find the funding to replace the cuts to Federal programs or reduce services in Medicaid and other areas.

The House bill would also sunset the MCO Tax over the next three years that is proposed to go into effect next year in New York.  The MCO tax is a provision that allows New York to tax various health care providers, receive matching funds from the Federal Government, and then return the funds largely to those same health care providers. It has long been viewed as a loophole by Congress and CMS that have been targeted for elimination for several years.

In addition to Congress proposing a sunset of the MCO tax, this past week, CMS released a proposed rule to eliminate the MCO tax that is slated to go into effect in 2026. This has been a priority of CMS for several years dating back to the Biden Administration.  The current rule, through a loophole, allows some higher health care related taxes, specifically taxes on managed care organizations at a higher rate than non-Medicaid taxable units. New York, and other states, would still have the ability to implement health care related tax programs that would be matched by the Federal Government, just at a lower rate than is currently being anticipated when using the current MCO tax model.

Additionally, while the Budget Committee did vote the bill out of Committee, the House Budget plan was initially voted down. They agreed to pass the bill Sunday night after receiving assurances that deeper cuts would be included in the bill before being brought to the floor. Those additional cuts have not been made public; HCANYS will continue to monitor the situation and report back on any additional changes to the Medicaid or Medicare program that could affect home care services.