WASHINGTON, D.C. — The longstanding Medicaid financing system is undergoing its most sweeping overhaul in decades as the Centers for Medicare & Medicaid Services on Friday issued new federal guidance that cracks down on state tax schemes long criticized for shifting costs to federal taxpayers. At the same time, CMS released the 2026 Medicare premiums and deductibles, revealing higher costs for millions of beneficiaries next year.
The two major announcements together mark a significant recalibration of federal health spending, tightening oversight of state Medicaid financing while outlining higher out-of-pocket costs for seniors and people with disabilities enrolled in Medicare.
Medicaid Financing Shakeup Could Save $200 Billion
CMS Administrator Mehmet Oz said the agency is “restoring the federal-state partnership” through new limits on health-care-related taxes and the closure of a long-standing loophole that allowed states—particularly California and New York—to draw down billions in extra federal Medicaid funds .
The guidance implements provisions of the Working Families Tax Cuts legislation, which prohibits new or increased health-care-related taxes and requires states to unwind financing practices that improperly boosted federal matching payments. CMS estimates the reforms will save taxpayers more than $200 billion over the next decade.
“While closing a loophole that some states were taking advantage of to shift billions in costs onto federal taxpayers, we have crafted policy that gives states time to transition,” Oz said.
States will face hard deadlines: taxes applied to managed care organizations must be compliant by the end of the 2026 state fiscal year, while all other affected tax structures must be unwound by the end of fiscal year 2028.
Medicare Premiums, Deductibles Climb in 2026
On the same day, CMS released the 2026 Medicare Parts A and B premiums and deductibles—numbers closely watched by retirees. Both programs will see increases next year, driven by higher projected medical costs and utilization trends .
For 2026:
- Part B premiums will rise to $202.90, up from $185.00 in 2025.
- The Part B deductible will increase to $283, up from $257.
- The Part A inpatient deductible will rise to $1,736, a $60 increase from 2025.
- Daily hospital coinsurance charges and skilled-nursing-facility copays will also increase.
High-income Medicare beneficiaries will face steeper monthly premiums under income-related adjustments. The highest-earning individuals—those with incomes above $500,000—will pay nearly $690 per month for full Part B coverage.
CMS noted that premiums could have risen even higher without recent agency action targeting overspending on certain physician-supplied biological products, saving beneficiaries an estimated $11 each month.
What It Means for Patients and States
For Medicaid:
States must now overhaul financing mechanisms that federal officials say inflated federal spending and blurred accountability. The new rules signal a return to tighter federal oversight of state Medicaid funding strategies.
For Medicare:
Most beneficiaries will pay more in 2026, though the increases are in line with historical trends. Roughly 99% of enrollees will continue to receive Part A hospital coverage without a premium due to sufficient work history.
A Pivotal Moment for Federal Health Spending
Together, the twin announcements reshape federal health-care obligations on both sides of the ledger—restricting how states finance Medicaid while asking Medicare beneficiaries to shoulder slightly higher costs.
CMS said more detailed rulemaking on the Medicaid financing rules is forthcoming, while final Medicare premium notices will appear in the Federal Register later this month.
Both actions emphasize CMS’s push to strengthen program integrity while navigating rising health-care costs nationwide.
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