RELEASE: Federal Government Approves California’s MCO Tax

May 18, 2016

SACRAMENTO - The federal government approved the state’s specialized tax on Managed Care Organizations (MCO) that will bring in about $1.1 billion for Medi-Cal, in addition to allocating more money for people with developmental disabilities.

The tax on all managed care plans will provide stable and ongoing funding for Medi-Cal and allow California to maximize its share of existing federal dollars without negatively affecting premiums.

“I am proud to have worked collaboratively with state leaders to bring disparate stakeholders together to solve real problems for our community,” said Senator Ed Hernandez, O.D. (West Covina). “I am excited that the federal government approved this desperately needed funding since more than 12 million people are enrolled in the program statewide.”

Senator Ed Hernandez, as chair of Senate Health Committee authored Senate Bill X2-2, the vehicle for the MCO Tax, which was passed through the Second Extraordinary Special Session pertaining to Health.


Since 2005, the MCO financing structure in the state generated revenue from Medi-Cal managed care plans, with the money being matched by the federal government and paying for the Medi-Cal program and providers. In 2014, the federal government said this structure would not be possible under federal Medicaid regulations starting in 2016-17.

California’s previous MCO Tax was set to sunset July 1, 2016.

The legislation was approved by more than two-thirds of the Legislature, and earned broad support from the California Association of Health Plans, CalChamber, California Medical Association, California Dental Association, California Hospital Association, Planned Parenthood, and others.