MCO Tax Budget Trailer Bill Now in Print

A budget trailer bill to extend the managed care organization provider tax (MCO tax) is now in print (AB 115). Recall, during budget convenings, the Legislature expressed significant concerns with the Administration not pursing a renewal of the MCO tax, which expired in July of this year. The previous MCO tax offset state General Fund spending on Medi-Cal by over $1 billion per year by leveraging federal dollars for Medi-Cal.  The Department of Health Care Services (DHCS) had previously cited the change in federal administration, upcoming waiver renewal negotiations, and only two other state MCO tax approvals as considerations for not pursing renewal of the tax. However, after further negotiation, an agreement was reached to pursue an MCO tax while delaying the inclusion of those revenues in the budget until federal approvals were secured.

The bill proposes to renew the MCO tax for three and a half years from July 1, 2019, to December 31, 2022, and identify two goals similar to the MCO tax in 2016: 1) generate an equivalent amount of nonfederal funds for Medi-Cal as generated by the previous tax; and 2) comply with federal Medicaid requirements. There are some key differences in the construct of the tax, with the enrollee tiers and associated taxes differing from the previous MCO tax structure. The bill, unlike the prior MCO tax, provides conditions in which the tax would cease to be operative: 1) If the director of DHCS, in consultation with the Department of Finance, determines that the taxes have not met the stated intent; and 2) if a determination is made by the courts or the federal Centers for Medicare and Medicaid Services (CMS) that the tax cannot be implemented.  

With only two weeks of session remaining, the MCO tax is likely to be an end-of-session item to watch. CHEAC will provide updates as deliberations on the bill progress.