Managed Care Organization Tax

Waiver of Broad-Based Authority

Medicaid statute and regulations afford states flexibility to tailor health care-related taxes within certain parameters to meet their provider community needs and align with broader state tax policies and priorities for their Medicaid programs. The Centers of Medicare and Medicaid Services (CMS) is authorized to waive the requirements that health care-related taxes be broad-based and/or uniform when applicable conditions are met. The Department of Health Care Services (DHCS) requested a waiver of the broad-based and uniformity provisions of sections 1903(w)(3)(B) and (C) of the Social Security Act (the Act), related to the State's managed care organization (MCO) tax.

Most recently, a modification to the Managed Care Organization (“MCO") tax, authorized by Assembly Bill (AB) 160 (Chapter 39, Statutes of 2024) with an effective date of January 1, 2024, through December 31, 2026, was approved by the Centers for Medicare and Medicaid Services (CMS) on December 20, 2024. As before, the tax applies to all full-service health plans, including their Medicaid and non-Medicaid (commercial) lines of business, consistent with federal law. MCO tax revenues will be used to support the Medi-Cal program, similar to the prior version of California's MCO tax.