More on the Governor’s MCO Tax Proposal and Medi-Cal

The new Managed Care Organization, or MCO, tax would start nine months earlier than Governor Newsom originally proposed, bringing in an extra $3.7 billion. But the extra money and earlier start date come with a catch: The proposal needs to be negotiated, finalized and submitted to the federal government for approval by the end of June. The last MCO tax, which expired in July, went into the general fund to backfill what the state spent on Medi-Cal, and Newsom’s January proposal was set to follow a similar formula. Under the Governor’s revised proposal, starting Jan. 1, rates would increase for primary care, maternity care and some mental health services. Certain providers would start getting 87.5 percent of what the federal government pays for those services through Medicare. That will cost $98 million out of the general fund in the 2023-24 fiscal year and around $240 million from the general fund in subsequent years. 

The administration predicts the tax could net $5 billion per year through at least 2026. The plan is for the tax to to stay in place for up to 10 years, significantly longer than January’s proposed 3- to 4-year timeline. The Legislature will now vet the tax proposal, and DHCS will eventually come back to lawmakers with more ideas on what to do with the money in the 2024-25 budget, including raising rates for specialty and outpatient care. DHCS says it will pay special attention to underserved areas and workforce issues. Here is the proposed trailer bill language.