The U.S. Senate’s version of the so-called “Big Beautiful Bill” could ultimately have major budgetary consequences for Missouri, thanks to a provision capping a critical tax that helps pay for Medicaid.
Like most of the country, Missouri uses a tax on medical providers, such as hospitals, as part of its state share to pay for Medicaid. Republican leaders have stressed the importance of what’s known as the Federal Reimbursement Allowance for years, often pulling out all the stops to make sure the tax is reauthorized.
But some conservatives have been fiercely critical of this type of arrangement, contending that it amounts to “money laundering.” And the Senate version of President Donald Trump’s tax cut, immigration and debt ceiling legislation would gradually force states that expanded Medicaid, like Missouri, to cap their provider taxes at 3.5% by 2031. That’s a major change from the House version of the bill, which disallows states from raising the tax or expanding programs like the FRA.
Currently, the state’s medical provider tax is around 4.2%. Missouri Hospital Association spokesman Dave Dillon said the Senate’s proposal would ultimately force Missouri lawmakers to either cut payments to health care providers or use general revenue to fill in the budgetary gap.
“Potential cuts to provider taxes of this magnitude, even over five years, will lead to state budget woes and harm to patients and providers,” Dillon said. “Missouri’s provider tax rate for state fiscal year 2025 is 4.2%. However, throughout the past decade it has averaged 5.47% and was 5.95% from 2015 to 2017. Each 0.1% cut in provider taxes is a $75.9 million cut to the state’s health care budget.”
Dillon also said the House version of the bill that prohibits the state from raising provider taxes could have unintended consequences down the line.
“One of the fears would be that if you lock in a rate at today's rate of 4.2%, you reduce your flexibility during a time where there are potentially some budget storm clouds after four to five years of surpluses,” Dillon said.
Hawley says Senate proposal 'needs work'
During an interview with St. Louis Public Radio on Tuesday, U.S. Sen. Josh Hawley said the Senate Finance Committee proposal “needs work” – adding that he was worried about how it will ultimately affect rural hospitals.
“Almost 50% of our hospitals in Missouri are rural. Heck, I grew up in a town of 4,000 people where we had one of those rural hospitals, and I don't want to see any of them close,” said Hawley, referring to his hometown of Lexington, Missouri. “So there's work to do on that.”
He said the Senate’s proposal on the medical provider tax is “frankly, a mess when it comes to rural hospitals.”
“So my view is this: I'm open to any proposal that will safeguard rural hospitals, but I'm not going to support something that closes them,” Hawley said. “Just like I said, I'm not going to support Medicaid benefit cuts. Now there are not Medicaid benefit cuts in this version of the bill, which is good.”
U.S. Sen. Eric Schmitt did not immediately respond to a request for comment Tuesday, but during an episode of the Politically Speaking Hour on St. Louis on the Air that aired before the Senate proposal became public, Schmitt said it was a misnomer for Missouri political figures to think that the state’s FRA system is a cost-free exercise.
“Having seen it myself, I do think there are some reforms,” said Schmitt, alluding to his time as a Missouri state senator from 2009 through 2017. “I remember in Jeff City, a lot of people call it free money. That's probably not a good way to look at it. So maybe there are some reforms that can be had there.”
Gov. Mike Kehoe’s spokeswoman, Gabby Picard, said the GOP chief executive “supports many of the important components of the Big Beautiful Bill.”
“He appreciates the Trump Administration’s and Republicans’ efforts to deliver much needed tax relief to Americans, secure the border, and return America to energy dominance,” Picard said. “For three decades, the FRA provider tax has been crucial to how Missouri funds health care benefits provided to Missourians through the Medicaid program. The governor and his team have stayed in close contact with members of Missouri’s congressional delegation on the importance of these provider taxes and will continue to monitor the bill as it moves through the Senate.”
More than 60 Missouri state lawmakers support bill
Sixty-four Missouri lawmakers signed letters on June 11 asking Schmitt and Hawley to pass the bill.
“As you lead the charge in Washington, know this: you have our full backing,” the lawmakers wrote. “We will proudly stand with you and with President Trump in promoting and defending this bill in our communities and across the state as partners in the fight to move this nation forward.”
Among those who signed were Senate President Pro Tem Cindy O’Laughlin, Senate Majority Leader Tony Luetkemeyer, Missouri Freedom Caucus Chairman Nick Schroer and House Budget Chairman Dirk Deaton.
House Speaker Jon Patterson, Speaker Pro Tem Chad Perkins and Senate Appropriations Committee Chairman Lincoln Hough did not sign the letter.
Hough, R-Springfield, sounded the alarm earlier this year about how changes to Medicaid, particularly lowering the federal contribution to expansion states like Missouri, could have dire budgetary consequences.
And Perkins told St. Louis Public Radio “the fact is we have so much going on in Jefferson City, I tend to leave to D.C. our elected officials in D.C.”
“It is also true that funding rural health care has always been a priority for me,” Perkins added.
During Friday’s episode of the Politically Speaking Hour on St. Louis on the Air, Patterson said people shouldn’t read anything into his decision not to sign that letter.
“If I signed every letter that I had the opportunity to sign, all I would do is sign letters,” Patterson said.
But he added that he was concerned about how Congress could make Medicaid more expensive for Missouri lawmakers.
“Whether it's altering the FRA program that we have or making cuts to Medicaid that would be devastating to our budget, and I'm not sure how we would even deal with that, because the cuts would be so severe,” Patterson said. “So I agree with Sen. Josh Hawley, who said that he does not favor cuts to the Medicaid program. We'll just have to see what happens with the federal government.”
Any final version of that legislation will have to be hashed out between the House and the Senate before it goes to Trump’s desk.
