Welf. & Inst. Code, § 14199.90

The Legislature finds and declares all of the following:

(a) The Legislature continues to recognize that an enrollment-based managed care organization (MCO) provider tax is an essential and necessary source of nonfederal funding for maintaining and improving access to care and reimbursement levels under, and maximizing federal financial participation for, the Medi-Cal program.

(b) The Legislature recognizes how the previous iterations of the MCO provider tax, in effect nearly continuously from July 1, 2016, enabled the state to provide ongoing funding for health care and prevention, while minimizing the need for any new reductions to the Medi-Cal program during the time periods when the tax was in effect.

(c) The current MCO provider tax, set forth in Article 7.1 (commencing with Section 14199.80), expires on December 31, 2026.

(d) Article 6 (commencing with Section 14199.123) of Chapter 7.5 requires the department to submit an application for a continued, permanent MCO provider tax, utilizing substantially similar models and methodologies as those for the MCO provider tax authorized in Article 7.1 (commencing with Section 14199.80), to the federal Centers for Medicare and Medicaid Services (CMS), to be effective on January 1, 2027.

(e) The passage of federal H.R. 1 (Public Law 119-21) in 2025, and the publication of the CMS Final Rule on February 2, 2026, titled “Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole” (91 FR 4794), materially changed the standards by which CMS may approve applications for a waiver from the broad-based and uniformity requirements for health care-related taxes under Section 433.68(e) of Title 42 of the Code of Federal Regulations.

(f) These new federal requirements may result in a denial of federal approval for the MCO provider tax authorized in Article 6 (commencing with Section 14199.123) of Chapter 7.5.

(g) The CMS Final Rule described in subdivision (e) provided the state with a transition period through December 31, 2026, to bring the state’s MCO provider tax into compliance with the new requirements under Section 433.68(e) of Title 42 of the Code of Federal Regulations.

(h) Implementation of a continued federally approvable MCO provider tax at the earliest possible effective date allowable under federal law, with an application for any necessary federal approvals submitted to CMS before the end of the state’s transition period on December 31, 2026, will best position the state to maintain and improve access to care and reimbursement levels, to maximize federal financial participation, and to minimize the need for any new reductions to the Medi-Cal program.

(i) In furtherance of subdivisions (a) to (h), inclusive, it is the intent of the Legislature that the department implement an MCO provider tax effective on January 1, 2027, that is not subject to Chapter 7.5 (commencing with Section 14199.100), in order to meet all of the following goals:

(1) Generate an amount of funds for the Medi-Cal program that is sufficient to fund the purposes specified in paragraphs (1) to (3), inclusive, of subdivision (d) of Section 14199.92 in full and the purpose specified in paragraph (4) of subdivision (d) of Section 14199.92 in the amount of at least two billion dollars ($2,000,000,000) annually.

(2) Comply with federal Medicaid requirements applicable to permissible health care-related taxes, including, but not limited to, Section 433.68 of Title 42 of the Code of Federal Regulations.

(3) Provide funding to support the Medi-Cal program.

(4) Minimize, to the extent possible, the need for any new reductions to the Medi-Cal program.