CSAC Bulletin Article

Federal Agency Approves Managed Care Organization (MCO) Tax

December 21, 2023

On December 15, the Centers for Medicare & Medicaid Services (CMS) approved the Managed Care Organization (MCO) tax federal waiver, which will allow the Department of Health Care Services (DHCS) to move forward with implementation for the authorized effective period, subject to any future changes in federal requirements concerning health care-related taxes.

Assembly Bill 119 (Chapter 13, Statutes of 2023) authorized a MCO tax (a tax imposed on all managed care plans per members served in a prior year) effective April 1, 2023, through December 31, 2026, subject to federal approval. The MCO tax is estimated to provide $19.4 billion in net non-federal funding over the tax period to be used to maintain the Medi-Cal program and support increased investments.

As previously reported in the CSAC Budget Action Bulletin issued in June 2023, as part of the 2024-25 Governor’s Budget, DHCS is required to submit to the Legislature a plan for targeted increases in specified domains to Medi-Cal payments or other investments that are designed to advance access, quality and equity for Medi-Cal beneficiaries and promote greater provider participation.

In June 2023, DHCS published a high-level term sheet, that proposes to target state funds, plus matching federal funds, toward various rate increases and investments, which are subject to legislative and federal approval. DHCS is broadly reviewing literature, analyzing data, and considering Medi-Cal members’ needs to put forward a proposal in the 2024-25 Governor’s Budget.

In the coming days, DHCS will certify in writing that federal approval has been received and issue notices to each MCO subject to the tax, outlining the tax due for each tax period and the dates on which the installment tax payments are due. In addition, DHCS will be publishing on its website information related to the MCO tax, including the approval letter, tax amounts due for each tax period, and other pertinent information.

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