On January 7, the Governor unveiled a $122.6 billion budget proposal for the 2016-17 fiscal year, including a new approach to replacing a soon-to-expire tax on managed care organizations (MCO).

The current MCO tax will expire this summer if legislators cannot agree on a replacement. Since 2005, the state has taxed MCOs and used the money to cover the costs of the Medi-Cal program. However, federal officials in 2014 informed California that its MCO tax structure was not compliant with federal requirements. Since then, the California Department of Health Care Services and other administration officials have been negotiating with the health plans to construct a tax scheme that meets federal standards. The loss of the MCO tax and the federal matching funds would mean a devastating loss of over $2 billion for the Medi-Cal program.

In his budget proposal, the Governor included a conceptual agreement on a new MCO tax that conforms to federal regulations and reportedly has agreement from the health plan industry. The details of the agreement are still being finalized, but we understand that under this agreement, health plans that pay the MCO tax would be exempt from other non-health care taxes like the gross premiums tax or the corporate tax.

“We are pleased to see the Governor is committed to working with the legislature and health plans to find a solution to the MCO tax. Without that, a gaping hole would exist in the state’s Medicaid (Medi-Cal) fund that would have devastating impacts on patients across the state," said CMA President Steve Larson, M.D. “With over one-third of the state’s population relying on Medi-Cal for health care coverage, it’s essential that access to care is a reality for those patients and not just an empty promise with an insurance card.”   

Contact: Eduardo Martinez, (800) 786-4262 or emartinez@cmadocs.org.