It is well known that Wisconsin’s Medicaid program, like those of all states, plays a ubiquitous role in providing residents access to health care.

Recent data from ForwardHealth places the number of Wisconsinites covered by Medicaid at nearly 1.3 million, amounting to over 20% of the population. Medicaid has an outsized impact for our young and old, as it covers 38% of children and 60% of nursing home residents.

It is highly unlikely that the need for a well-functioning Medicaid program will wane anytime soon, as nearly 23% of Wisconsinites are currently in the age 50-64 age group – the largest cohort of individuals under the age of 65 when grouped for a 15-year period.

As crucial as Medicaid is for Wisconsin and other states, Congress is currently finalizing proposals that could significantly reduce its federal funding. This blog post provides an overview of how Wisconsin funds its Medicaid program and examines how currently contemplated proposals may impact the program.

Funding Wisconsin’s Medicaid Program

Wisconsin, like all states, relies heavily on federal support to fund its Medicaid program, receiving $9.24 billion in federal funding over a recent fiscal year to supplement $3.7 billion of state funds earmarked for the program. With federal and state funding at nearly $13 billion in total, Wisconsin reserves over a quarter of its budget each year for support of its Medicaid program.

Federal Medical Assistance Percentage (FMAP) and State Spending. The FMAP is the primary mechanism through which states, including Wisconsin, obtain federal funding for Medicaid, and in itself represents the federal government’s share of a state’s Medicaid spending for a given year, (i.e., a state such as New York assigned the minimum 50% FMAP set by statute will receive a one-to-one match in federal support for its program). For FFY 2026, Wisconsin’s FMAP is estimated at just under 61%, which would allow it to receive $1.54 in federal funding for every dollar spent.

While most state funds used to support its portion of the Medicaid bill come from general purpose revenues (GPR), rebates from drug manufacturers, estate recovery, and provider taxes make up another large source of Medicaid funding for most states. By taxing providers and using the proceeds to fund its Medicaid contribution, states can extend federal funding through the FMAP. Federal law effectively caps the provider tax at 6%, and Wisconsin currently imposes less than a 5% provider tax across all provider types.^[1]

Figure 1 breaks down Wisconsin’s Medicaid spending for the 2023-24 budget year by source. As shown in the table, provider taxes and the FMAP Match account for a large proportion of Wisconsin’s Medicaid expenditures.^[2]

Figure 1: Wisconsin’s Medicaid spending for the 2023-24 budget year by source.

Proposals to Reduce Federal Medicaid Spending

FMAP Reductions. The most direct way for the federal government to reduce Medicaid funding is to reduce the FMAP match. This can occur through a blanket percentage reduction or by lowering the current 50% FMAP floor.

Another popular proposal for lowering federal Medicaid spending calls for moving away from the FMAP and instead utilizing a per-capita cap on Medicaid spending. Under this proposal, the federal government would match state spending up to a fixed amount per beneficiary. Because federal spending under FMAP is not capped, a per-capita cap on Medicaid spending would fundamentally alter how states can administer Medicaid. Such a change would dramatically shift costs, as well as the risks associated with rising costs, onto the states.

Limits on Provider Tax. An alternative way for the federal government to reduce its FMAP expenditure without altering the FMAP system is to cap the value of provider taxes states can collect.

The Congressional Budget Office concluded that lowering the current 6% cap on provider taxes to 5% would result in $48 billion in federal savings, while lowering the cap to 2.5% would result in $241 billion in savings.^[3] A cap on provider tax reduces federal spending because it would reduce the amount states can spend on Medicaid, lowering the federal government’s obligation under FMAP.

Legislators have been especially receptive to capping the provider taxes due to the increasing importance of the assessments. Provider taxes accounted for 7% of the state portion of Medicaid spending in 2008, but in 2018, they accounted for 17% of state Medicaid spending.

Proposals Contained in 2025 Budget Reconciliation. The House of Representatives adopted a budget resolution for the 2025 fiscal year instructing the Energy and Commerce Committee to identify and implement $880 billion in spending cuts over the next decade.

On May 12, 2025, the committee released its first bill under this mandate that includes several significant developments for Medicaid funding. Importantly, the bill did not include large changes to the FMAP such as a reduction or the implementation of a per-capita cap.

A​ significant change to Medicaid policy included in the bill addresses provider taxes. In particular, Section 44132 of the bill freezes provider taxes to the rates in effect as of the bill’s enactment. It also prohibits states from establishing new provider taxes.

Impact on Wisconsin’s Medicaid Program

The proposal to freeze provider taxes would impede Wisconsin’s ability to adjust assessments in order to keep pace with rising costs.

Currently, Wisconsin assesses a tax of less than 3.5% for nursing facilities and hospitals, and assesses intermediate care facilities at a steeper rate of 5.0%. The committee’s proposal to freeze provider taxes at current rates impedes Wisconsin’s ability to raise Medicaid funds because Wisconsin will lose the option to raise provider taxes to the same rate as states already at the maximum.

Moreover, while some states assess the provider tax on managed care organizations, ambulance providers, home care providers, and pharmacies, Wisconsin currently does not. Since the committee proposal also intends to prohibit any new provider tax schemes, Wisconsin would lose access to significant untapped revenue sources that other states already utilize in funding Medicaid.

Wisconsin currently accumulates the greatest revenue from provider taxes assessed on hospitals, raising roughly $415 million in state revenue in 2023-24. Based on its FMAP, the state approximately leveraged an additional $640 million in federal funding attributable to provider taxes.

Because Wisconsin assesses less than a 3.5% provider tax on hospitals, placing it among one of the lowest rates in the nation, it would have been able to significantly increase its Medicaid funding by raising assessments for hospitals closer to the maximum 6% allowed by statute. Even a conservative policy change to raise the hospital tax by 30%, to a rate that would still fall below 4.6%, would have allowed Wisconsin to pool an additional $125 million in state funds and an additional $191 million in federal funding.

Conclusion: A Significant Impact

Although the financial impact of the freeze on provider taxes pales in comparison to the anticipated impact of a per-capita cap on Medicaid spending, which Wisconsin’s Department of Health Services recently placed at between $6.4 billion and $16.8 billion over the next 10 years, the freeze would significantly impact Wisconsin’s ability to respond to future legislation regarding Medicaid funding.

As described above, even a modest increase to the provider tax for hospitals alone could allow Wisconsin to leverage over an additional $300 million in Medicaid funding annually, amounting to over $3 billion over the next 10 years.

Without the flexibility to raise funds through provider taxes, Wisconsin would have to turn to several less palatable choices to maintain Medicaid services, such as devoting more GPR toward Medicaid, trimming services and eligibility, or reducing provider payment rates.

Wisconsin policymakers and stakeholders should remain vigilant and engaged to protect the state's ability to sustain a robust and responsive Medicaid program for our most vulnerable residents.

This article was originally published on the State Bar of Wisconsin’s Health Law Blog. Visit the State Bar sections or the Health Law Section webpages to learn more about the benefits of section membership.

Endnotes

[1]See Kaiser Family Foundation, “5 Key Facts About Medicaid and Provider Taxes,” March 25, 2025.

[2] Wisconsin Legislative Fiscal Bureau, “Medical Assistance and Related Programs, Informational Paper 46,” p. 10.

[3] Congressional Research Service, “Medicaid Provider Taxes,” Dec. 12, 2024.