Some Missouri Republicans are pushing back against their federal counterparts over their harsh criticism of a critical tax that helps states pay for its share of Medicaid.
For several decades, Missouri taxed places like hospitals and pharmacies to help pay for its share of Medicaid. Currently, the tax is at 4.2% – but it’s gone as high as close to 6%.
A recently-enacted budgetary package that cuts taxes, restricts immigration, and raises the nation’s debt ceiling would require states to lower medical provider taxes to 3.5% by 2032. Groups like the Missouri Hospital Association say this will end up costing the state hundreds of millions of dollars, forcing policymakers either to spend less money on things like education or pay providers less money.
Some Senate Republicans have derided medical provider taxes as a money laundering scheme that helps states bilk money from the federal government. South Carolina Republican Sen. Lindsey Graham called medical provider taxes “scams,” while Idaho Republican Sen. Mike Crapo contended “they were a financing gimmick used by states to increase the federal spending they receive.”
But that’s not the view of key Republican leaders in Missouri, including Gov. Mike Kehoe.
“In Missouri, we’ve handled it very responsibly,” said Kehoe on Thursday after an unrelated bill signing ceremony in downtown St. Louis. “As you’ve seen, we’ve had the percentage go up and down to only use what we need. And I’m a fan of that model. I think we’ve used it effectively. And credit to our hospital and our hospital association, they’ve really done a good job of making sure we don’t take advantage of it. We use it to fit Missourians the best.”
Sen. Josh Hawley also found arguments from people like Graham and Crapo unpersuasive. In an interview earlier this week he said medical provider taxes are “a way that the states have, legally and totally above board, chosen to fund their contribution to Medicaid.”
“I mean, my colleagues who say they don’t like this, would they prefer that homeowners be taxed more?” Hawley said. “Would they prefer that we have higher energy taxes? I mean, where? How do they want to raise the money? I just think that this is a silly argument.”
Kehoe said he’s supportive of Hawley’s pledge to try and prevent the medical provider tax curbs from going fully into effect by 2032.
“We’ll do all we can to assist that,” Kehoe said.
Hawley said he hopes a $50 billion fund aimed at rural hospitals will be helpful – especially if lawmakers like him are able to prevent the medical provider tax restrictions from ever going into effect.
“It is a mistake. It is the wrong thing to do,” Hawley said. “And that’s why I emphasize Missouri is going to see an increase in funding for rural hospitals over the next four years. And that will give us time to stop any future cuts going forward.”
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Trump administration backs cuts
Even if Congress did undo those provisions, key members of Trump’s administration have been critical of states that utilize provider taxes.
Centers for Medicare & Medicaid Service Director Mehmet Oz has compared medical provider taxes to money laundering, since, in his view, some of that money will go back to hospitals who send funds to the state.
“This has been on the radar of both Democratic and Republican administrations for a long time,” said Robert Kaestner, a research professor at the University of Chicago. “If you explain the provider tax to the American public, they’re going to support getting rid of it too. It’s just a money generating machine for states to pass on to get federal money for what they’re doing.”
Kaestner doesn’t dispute that restricting the tax will force states to make difficult choices. But he also added that states have been flush with cash up until relatively recently, thanks to huge amounts of money coming from the federal government.
“The largess that came out of the pandemic payments have been long lasting for states,” Kaestner said, “It’s not like they’ve been raising, raising, raising taxes. They’ve been cutting taxes. On average, their budgets are looking good. The federal government has been supporting them generously for the last several years. So I also think states are in a little better position now, especially with the long runway they’ve been given again to put their Medicaid and state budgets on a better footing.”
Kehoe is slated to sign legislation Thursday afternoon that would, among other things, phase out Missouri’s capital gains taxes. And under Gov. Mike Parson, lawmakers approved a sizable tax cut in 2022.
But Kehoe said the federal legislation doesn’t weaken his support for tax cuts.
“We want people to have money back in their pocket, because I believe individuals can spend money better than the government can every day of the week,” he said.
St. Louis Public Radio’s Sarah Fentem contributed information to this article.
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