Managed Care Organization (MCO) Provider Tax (Proposed Article 7.2)
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Proposed trailer bill language to add Article 7.2 (Sections 14199.90–14199.97) establishing a continued, federally-approvable managed care organization provider tax to fund Medi‑Cal beginning Jan 1, 2027; affects DHCS implementation and funding for Medi‑Cal and managed care organizations in California.
Article 7.2 (Sections 14199.90–14199.97) is added to create a continued managed care organization provider tax effective January 1, 2027.
The proposed tax must generate at least $2,000,000,000 annually for specified purposes in Section 14199.92(d).
The new tax must comply with federal Medicaid health care-related tax requirements, including 42 C.F.R. §433.68.
Implementation of a continued federally-approvable managed care organization provider tax effective January 1, 2027, that is not subject to Chapter 7.5, Part 3, Division 9 of the Welfare and Institutions Code.
The tax must generate sufficient funds to fully fund the purposes in subdivision (d) of Section 14199.92 and at least $2,000,000,000 annually for the purpose specified in paragraph (4) of that subdivision.
The tax must comply with federal Medicaid requirements for permissible health care-related taxes, including 42 C.F.R. § 433.68.
Goals for the tax include providing funding to support the Medi‑Cal program and minimizing, to the extent possible, the need for new reductions to the Medi‑Cal program.
Implements a continued federally-approvable managed care organization provider tax of at least two billion dollars ($2,000,000,000) annually.
An operative date and multi‑year sunset/repeal schedule for the managed care organization tax article with continuation of tax liabilities until fully paid.
Minimum reimbursement floors for specified services set at the greater of 87.5% of Medicare lowest maximum allowance or existing reimbursement levels inclusive of Proposition 56 increases, effective for dates of service no sooner than Jan 1, 2024.
Funding support and directed payment mechanisms tied to managed care organization provider tax revenue and other state funds, with guidance for transfer to specific reserve and treatment funds.
Community health workers designated eligible provider type for the rate increases effective Jan 1, 2025, with a specified reimbursement benchmark equal to 100% of Medicare lowest maximum allowance.
Coverage and Reimbursement Criteria for MCO Provider Tax Funds
inv-01: MCO provider tax criteria
Design and implementation criteria for the continued MCO provider tax (Article 7.2):
inv-02: MCO Provider Tax criteria
Stated objectives and compliance requirements for the provider tax.
inv-03: Medi‑Cal Stability Fund allocation priorities
Allocation priorities for revenues deposited into the Medi‑Cal Stability Fund are specified and continuously appropriated to the Department, with an order of priority.
ALL of the following
- Department administrative costs up to $4,000,000 annually
- Nonfederal share of increased capitation payments to Medi‑Cal managed care plans to account for their projected tax obligation for the applicable tax period(s)
- Nonfederal share of the payments described in Section 14105.201
- Nonfederal share of Medi‑Cal managed care rates for health care services furnished to children, adults, seniors, persons with disabilities, and dually eligible persons, with at least $2,000,000,000 annually allocated for the category in paragraph (4)
inv-04: Base‑year enrollment determination
Department must determine, using the base data source, the following enrollment counts for each health plan for the base year:
inv-05: Required enrollment data elements
For each health plan, the department will determine the following base-year cumulative enrollment amounts (using the base data source):
inv-06: Required enrollment counts
For each health plan, using the base data source, the department shall determine the following enrollment counts for the base year to calculate the nonfederal share of increased capitation payments:
inv-07: Reimbursement rate minimums
Reimbursement floor provisions for selected services:
inv-08: Medi‑Cal payment and provider criteria
Payment and coverage criteria for specified services and provider types:
Citations, Financial Thresholds, and Numerical Parameters
| 42 C.F.R. §433.68 | Federal regulation governing permissible health care-related taxes; referenced as a compliance requirement for the tax. |
| 42 C.F.R. §433.68 | Federal regulation referenced for permissible health care-related taxes |
| 42 C.F.R. § 433.68 | Federal regulation regarding permissible Medicaid health-care related taxes |
| No codes listed |
| $8.85 per countable enrollee per month | Baseline per-enrollee tax amount |
| ±10% for 2027; ±25% for subsequent periods | Limits on how much an alternative tax amount may differ from baseline |
| Greater of 87.5% of Medicare lowest maximum allowance or existing reimbursement inclusive of Proposition 56 | Reimbursement floor for primary care, obstetric/doula services, and certain outpatient mental health services as specified in Section 14105.201. |
| 100% of Medicare lowest maximum allowance | Reimbursement benchmark for community health workers effective Jan 1, 2025. |
| Methodologies under 42 C.F.R. § 438.6(c) | Permissible methodologies for directed reimbursements to ensure capitated plans reimburse network providers at fee-for-service equivalent amounts. |
Implementation, Compliance, and Operational Requirements for Health Plans
Implement and comply with continued MCO provider tax (effective Jan 1, 2027)
Implement and comply with a continued federally-approvable managed care organization provider tax effective January 1, 2027; ensure funds generated meet the purposes in Section 14199.92 and at least $2,000,000,000 annually for the purpose specified in paragraph (4) of subdivision (d) of Section 14199.92.
- Effective date: January 1, 2027
- Minimum annual amount for paragraph (4): $2,000,000,000
MCO provider tax implementation: statutory scope and effective date
Implement a continued federally-approvable managed care organization provider tax effective January 1, 2027 that is not subject to Chapter 7.5, Part 3, Division 9 of the Welfare and Institutions Code.
Implement MCO provider tax at earliest permissible effective date
Implement the continued federally-approvable MCO provider tax at the earliest possible effective date allowable under the Welfare and Institutions Code to meet funding and compliance goals, including achieving at least $2,000,000,000 annually for the specified purpose.
- Objective: earliest permissible effective date to meet statutory goals
- Funding target: at least $2,000,000,000 annually for paragraph (4)
Timing objective: earliest allowable effective date under Section 14199.92
Implement the continued federally-approvable MCO provider tax at the earliest possible effective date allowable under Section 14199.92 to achieve the statute’s funding and compliance objectives, including the $2,000,000,000 minimum for subdivision (d)(4).
Objective to implement tax as soon as allowable to meet funding targets
Implement the continued federally-approvable MCO provider tax at the earliest possible effective date allowable to fund specified Medi‑Cal purposes and to generate at least $2,000,000,000 annually for the purpose in paragraph (4) of subdivision (d) of Section 14199.92.
Federal compliance: adhere to 42 C.F.R. §433.68
Comply with federal Medicaid requirements for permissible health care-related taxes, including Section 433.68 of Title 42 of the Code of Federal Regulations.
- Design and implementation must meet 42 C.F.R. §433.68 requirements
Federal compliance requirement: 42 C.F.R. §433.68 applies
Department and implementation actions must comply with 42 C.F.R. §433.68 and related federal Medicaid requirements applicable to permissible health care-related taxes.
Definition of 'health plan' (scope of plans subject to tax)
For purposes of the tax, 'health care service plan' or 'health plan' means a Knox‑Keene licensed health care service plan or a managed care plan contracted with the State Department of Health Care Services to provide full-scope Medi‑Cal services.
Use of Medi‑Cal Stability Fund for cash‑flow loans (Controller authority)
The Controller may use funds in the Medi‑Cal Stability Fund for cash‑flow loans to the General Fund as provided in Government Code Sections 16310 and 16381.
Department to determine base‑year enrollment counts for each health plan
The department shall determine, using the base data source, total cumulative enrollment and specified enrollment categories for the base year for each health plan to calculate the nonfederal share of increased capitation payments attributable to the tax.
- Required counts include: total cumulative enrollment; Medicare cumulative enrollment; Medi‑Cal cumulative enrollment; plan‑to‑plan cumulative enrollment; FEHBA cumulative enrollment; other cumulative enrollment
Director authority to correct material or significant data errors
The Director may correct any identified material or significant error in the data used for the department’s enrollment determinations and related calculations.
Director may correct material/significant errors in calculation data
The Director may correct any identified material or significant error in the data used for calculations related to the tax determinations.
Tax payment, notice, interest, penalties, and waiver process
Health plans must pay the assessed tax in quarterly installments; the department will send notices within 30 business days after director certification or federal approvals; interest on late payments is 10% per annum, penalties equal to accrued interest apply if payment is over 60 days overdue, and the director may waive interest or penalties conditioned on an alternative payment schedule.
- Collection timing: quarterly installments
- Notice timing: within 30 business days of certification/approval
- Interest: 10% per annum on late payments
- Penalty: additional monthly penalty equal to accrued interest if >60 days overdue
- Waiver: director may waive interest/penalties, conditioned on alternative payment schedule
Condition precedent: federal certification or CMS approval required before collection
The department shall not collect the tax until the director certifies in writing that the tax is federally permissible under 42 C.F.R. §433.68 or until CMS provides written approval; the director must post and notify specified state officials upon certification or approval.
- Condition precedent: director certification or CMS written approval required before collection
- Transparency: certification must be posted and sent to Secretary of State and legislative officers
Directed reimbursement and information submission authority
The department may direct Medi‑Cal managed care plans to reimburse eligible providers using methodologies authorized under 42 C.F.R. §438.6(c); capitated plans must ensure network providers receive reimbursement equal or projected equal to applicable fee‑for‑service amounts, and the department may require plans and providers to submit information to implement and monitor compliance.
- Directed reimbursement allowed under 42 C.F.R. §438.6(c)
- Capitated plans must ensure equivalent provider reimbursement to fee‑for‑service amounts
- Department may require data submission from plans and providers to monitor compliance
Key Terms and Data Sources
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