Medi-Cal Financing

• Federal Policy Impacts
• Federal Policy Impacts
• Medi-Cal Eligibility
• Medi-Cal Benefits
• Behavioral Health
• Reproductive Health
• Medi-Cal Financing
• Section 1115 Waivers

Recent federal changes under H.R. 1 affect how states can fund Medicaid programs, including limits on provider taxes, new rules for state directed payments (SDP), and adjustments to managed care payment requirements.  

Notable Federal Actions 

• Managed Care Organization (MCO) Tax 
  • In February 2026, CMS finalized a rule that changes federal requirements for health care-related taxes used to finance Medicaid programs. The rule leaves intact California’s MCO Tax through its current authorized term (December 31, 2026), after which the same tax structure will no longer be federally approvable. DHCS will work closely with partners and stakeholders on next steps related to the tax and related payment methodologies that are needed to comply with federal requirements. For more details, see the CMS Final Rule and Fact Sheet.  
• State Directed Payments 
  • In February 2026, CMS issued updated preliminary guidance on H.R. 1 Section 71116 payment limits and grandfathering, replacing its September 2025 guidance. The updated direction outlines stricter requirements for SDPs, including rate-setting transparency, documentation, and alignment with federal standards, pending formal rulemaking. 

Actions California Is Taking 

• Review of H.R. 1 Impacts 
  • DHCS is analyzing implications for Medi-Cal financing, including the existing MCO tax, Proposition 35 funding, and existing SDPs. See recent presentations on the topic:
    • Protect Access to Health Care Act Stakeholder Advisory Committee (SAC) (May 28, 2026)
    • SAC/Behavioral Health (BH) SAC (May 20, 2026) 
    • Protect Access to Health Care Act SAC (January 14, 2026) 
    • SAC/BH-SAC (October 29, 2025) 
    • Protect Access to Health Care Act SAC (July 18, 2025) 
• Response to CMS Rulemaking 
  • In July 2025, DHCS submitted comments on proposed provider tax rules and continues monitoring federal guidance and timelines. 

Page last updated July 1, 2026