ARTICLE 7.1. Managed Care Organization Provider Tax [14199.80. - 14199.87.]

Cal. Welfare and Institutions Code - WIC 7.1.

in effect

Cal. Welfare and Institutions Code - WIC § 14199.80. Section 14199.80.

The Legislature finds and declares all of the following: (a) The Legislature continues to recognize that an enrollment-based managed care organization 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 managed care organization 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) Implementation of a new managed care organization provider tax at the earliest possible effective date allowable under federal law will best position the state to maintain and improve access to care, maximize federal financial participation, and minimize the need for any new reductions to the Medi-Cal program. (d) In furtherance of subdivisions (a) to (c), inclusive, it is the intent of the Legislature that the department implement a managed care organization provider tax effective April 1, 2023, to meet all of the following goals: (1) Generate an amount of nonfederal funds for the Medi-Cal program that is greater than the nonfederal funds generated by the tax imposed pursuant to Article 6.8 (commencing with Section 14199.60). (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 health care delivery system with an emphasis on the impact to the Medi-Cal program. (4) Minimize, to the extent possible, the need for any new reductions to the Medi-Cal program.

Cal. Welfare and Institutions Code - WIC § 14199.81. Section 14199.81.

The following definitions shall apply for purposes of this article: (a) “Base data source” means the quarterly financial statement filings or annual enrollment data submitted by health plans to the Department of Managed Health Care retrieved by the department no later than June 30, 2023, and supplemented by, as necessary, Medi-Cal enrollment data for the base year as maintained by the department and retrieved no later than June 30, 2023, and as modified by the department to account for known or anticipated changes that will affect Medi-Cal enrollment on or after January 1, 2024. However, if the department elects to update the base year pursuant to subdivision (b), “base data source” means the most recently available quarterly financial statement filings or annual enrollment data submitted by health plans to the Department of Managed Health Care for that updated base year, retrieved by the department, and supplemented by, as necessary, Medi-Cal enrollment data for the updated base year as maintained by the department, and as modified by the department to account for known or anticipated changes that will affect Medi-Cal enrollment. (b) “Base year” means the 12-month period of January 1, 2022, through December 31, 2022. However, the department may elect to update the base year to the extent that it deems necessary to meet the requirements of federal law or regulations, to obtain or maintain federal approval, or to ensure federal financial participation is available or is not otherwise jeopardized. (c) “Countable enrollee” means an individual enrolled in a health plan, as defined in subdivision (f), during a month of the base year according to the base data source. “Countable enrollee” does not include an individual enrolled in a Medicare plan, a plan-to-plan enrollee, as defined in subdivision (m), or an individual enrolled in a health plan pursuant to the Federal Employees Health Benefits Act of 1959 (Public Law 86-382) to the extent the imposition of the tax under this article is preempted pursuant to Section 8909(f) of Title 5 of the United States Code. (d) “Department” means the State Department of Health Care Services. (e) “Director” means the Director of Health Care Services. (f) “Health care service plan” or “health plan” means a health care service plan, other than a plan that provides only specialized or discount services, that is licensed by the Department of Managed Health Care under the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code) or a managed care plan contracted with the State Department of Health Care Services to provide full-scope Medi-Cal services. (g) “Medi-Cal enrollee” means an individual enrolled in a health plan, as defined in subdivision (f), who is a Medi-Cal beneficiary for whom the department directly pays the health plan a capitated payment. (h) “Medi-Cal per enrollee tax amount” means the amount of tax assessed per countable Medi-Cal enrollee within a Medi-Cal taxing tier. (i) “Medi-Cal taxing tier” means a range of cumulative enrollment of countable Medi-Cal enrollees for the base year. (j) “Other enrollee” means an individual enrolled in a health plan, as defined in subdivision (f), who is not a Medi-Cal beneficiary. (k) “Other per enrollee tax amount” means the amount of tax assessed per countable other enrollee within an “other taxing tier.” (l) “Other taxing tier” means a range of cumulative enrollment of countable other enrollees for the base year. (m) “Plan-to-plan enrollee” means an individual who receives their health care services through a health plan pursuant to a subcontract from another health plan. (n) “Tax period” means a period of not more than 12 months for which the tax authorized by this article is assessed, in accordance with the requirements described in Section 14199.84.

Cal. Welfare and Institutions Code - WIC § 14199.82. Section 14199.82.

(a) The Managed Care Enrollment Fund is hereby created in the State Treasury. (b) All revenues, less refunds, derived from the taxes provided for in this article shall be deposited in the State Treasury to the credit of the Managed Care Enrollment Fund. (c) Notwithstanding Section 16305.7 of the Government Code, any interest and dividends earned on moneys in the Managed Care Enrollment Fund shall be retained in the fund and used solely for the purpose specified in subdivision (d). (d) Funds deposited in the Managed Care Enrollment Fund pursuant to this article shall, upon appropriation by the Legislature, be available to the department for the purpose of funding all of the following subcomponents to support the Medi-Cal program: (1) The nonfederal share of increased capitation payments to Medi-Cal managed care plans accounting for their projected tax obligation pursuant to this article for the applicable fiscal year or years. (2) The nonfederal share of Medi-Cal managed care rates for health care services furnished to children, adults, seniors and persons with disabilities, and persons dually eligible for the Medi-Cal program and the Medicare Program. (3) Transfers to the Medi-Cal Provider Payment Reserve Fund established pursuant to Section 14105.200. (e) The department shall provide an annual report to all health plans accounting for the funds deposited in, and expended from, the Managed Care Enrollment Fund, in a time and manner as deemed appropriate by the director. The report shall identify the taxes imposed on each health plan pursuant to this article and shall provide an itemized accounting of expenditures from the fund. (f) Effective December 31, 2023, the Health Care Services Special Fund in the State Treasury, created pursuant to Section 14199.62, is hereby abolished. All moneys in the fund or moneys designated to be deposited to the fund shall be transferred to the Managed Care Enrollment Fund created pursuant to subdivision (a). Any remaining balance, assets, liabilities, and encumbrances of the Health Care Services Special Fund as of December 31, 2023, shall be transferred to, and become part of, the Managed Care Enrollment Fund. (g) Notwithstanding any other law, the Controller may use the funds in the Managed Care Enrollment Fund for cashflow loans to the General Fund as provided in Sections 16310 and 16381 of the Government Code.

Cal. Welfare and Institutions Code - WIC § 14199.83. Section 14199.83.

(a) The department shall determine for each health plan, using the base data source, all of the following: (1) Total cumulative enrollment for the base year. (2) Total Medicare cumulative enrollment for the base year. (3) Total Medi-Cal cumulative enrollment for the base year. (4) Total plan-to-plan cumulative enrollment for the base year. (5) Total cumulative enrollment through the Federal Employees Health Benefits Act of 1959 (Public Law 86-382) for the base year. (6) Total other cumulative enrollment for the base year that is not otherwise counted in paragraphs (2) to (5), inclusive. (b) Notwithstanding any other provision in this article, the director may correct any identified material or significant error in the data, including, but not limited to, the overall cumulative enrollment, Medicare cumulative enrollment, Medi-Cal cumulative enrollment, plan-to-plan cumulative enrollment, cumulative enrollment through the Federal Employees Health Benefits Act of 1959 (Public Law 86-382), and other cumulative enrollment. The director’s determination as to whether to exercise discretion under this section and any determination made by the director under this section shall not be subject to judicial review, except that a health plan may bring a writ of mandate under Section 1085 of the Code of Civil Procedure to rectify an abuse of discretion by the department in correcting that health plan’s data when that correction results in a greater tax amount for that health plan pursuant to Section 14199.85.

Cal. Welfare and Institutions Code - WIC § 14199.84. Section 14199.84.

(a) A managed care organization provider tax shall be imposed on each health plan. The tax shall be imposed for the following tax periods: (1) April 1, 2023, through December 31, 2023. (2) 2024 calendar year. (3) 2025 calendar year. (4) 2026 calendar year. (b) (1) The department shall compute the annual tax for each health plan subject to the tax during each applicable calendar year pursuant to Section 14199.85. (2) The computed tax for the tax period of April 1, 2023, through December 31, 2023, shall be equal to three-fourths of the amount that would otherwise be computed for a 12-month period, as determined by the department. (c) The department shall collect the tax for each health plan in quarterly installments and shall determine the amount due for each installment in the applicable tax period by dividing the total tax for a tax period by the number of calendar quarters in the respective tax period. (d) The department shall not collect the tax imposed pursuant to this article until the department receives approval from the federal Centers for Medicare and Medicaid Services that this tax is a permissible health care-related tax in accordance with Section 433.68 of Title 42 of the Code of Federal Regulations and is eligible for federal financial participation. (1) Within 10 business days following the date the department receives all necessary federal approvals for the tax pursuant to this article, the director shall certify in writing that federal approval has been received, and the department shall post the certification on its internet website and send a copy of the certification to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel. (2) Within 30 business days following the date the department receives all necessary federal approvals for the tax pursuant to this article, the department shall send a notice to each health plan subject to the tax that shall contain the following information: (A) The tax due for each tax period. (B) The dates on which the installment tax payments are due for each tax period. (3) A health plan shall pay the tax for each tax period in installments as calculated pursuant to Section 14199.85, based on a schedule developed by the department. The department shall establish the date that each tax payment is due, provided that the first tax payment shall be due no earlier than 20 calendar days following the date the department sends the notice pursuant to paragraph (2), and the tax payments shall be paid at least one month apart, but no more than one quarter apart. (4) A health plan shall pay the taxes that are due, if any, in the amounts and at the times set forth in the notice unless superseded by a subsequent notice issued by the department. (e) The tax assessed pursuant to this article shall be paid by each health plan subject to the tax to the department for deposit in the Managed Care Enrollment Fund created pursuant to Section 14199.82. (f) (1) Interest shall be assessed on an applicable health plan for any amount of the managed care organization provider taxes that are not paid on the date due at a rate of 10 percent per annum. Interest shall begin to accrue the day after the date the tax payment was due and shall be deposited in the Managed Care Enrollment Fund created pursuant to Section 14199.82. (2) If a tax payment is more than 60 days overdue, a penalty equal to the total accrued interest charge described in paragraph (1) shall also be assessed on the applicable health plan and due for each month for which the tax payment is not received after 60 days. (g) (1) Subject to paragraph (2), the director may waive a portion or all of either the interest or penalties, or both, assessed under this article if the director determines, in their sole discretion, that the health plan has demonstrated that imposition of the full amount of the tax pursuant to the timelines applicable under this article has a high likelihood of creating an undue financial hardship for the health plan or creates a significant financial difficulty in providing needed services to Medi-Cal beneficiaries. (2) Waiver of some or all of the interest or penalties pursuant to this subdivision shall be conditioned on the health plan’s agreement to make tax payments on an alternative schedule developed by the department that takes into account the financial situation of the health plan and the potential impact on the delivery of services to Medi-Cal beneficiaries. (h) In the event of a merger, acquisition, establishment, or any other similar transaction that results in the transfer of health plan responsibility for all countable enrollees under this article from a health plan to another health plan or similar entity, and that occurs at any time during which this article is operative, the resultant health plan or similar entity shall be responsible for paying the full tax amount as provided in this article that would have been the responsibility of the health plan to which that full tax amount was assessed upon the effective date of any such transaction. If a merger, acquisition, establishment, or any other similar transaction results in the transfer of health plan responsibility for only some of a health plan’s countable enrollees under this article but not all countable enrollees, the full tax amount as provided in this article shall remain the responsibility of that health plan to which that full tax amount was assessed.

Cal. Welfare and Institutions Code - WIC § 14199.85. Section 14199.85.

(a) For each tax period, the Medi-Cal taxing tiers shall be as follows: (1) Medi-Cal taxing tier I shall consist of all countable Medi-Cal enrollees in a health plan from zero to 1,250,000, inclusive. (2) Medi-Cal taxing tier II shall consist of all countable Medi-Cal enrollees in a health plan from 1,250,001 to 4,000,000, inclusive. (3) Medi-Cal taxing tier III shall consist of all countable Medi-Cal enrollees in a health plan greater than 4,000,000. (b) For each tax period, the other taxing tiers shall be as follows: (1) Other taxing tier I shall consist of all countable other enrollees in a health plan from zero to 1,250,000, inclusive. (2) Other taxing tier II shall consist of all countable other enrollees in a health plan from 1,250,001 to 4,000,000, inclusive. (3) Other taxing tier III shall consist of all countable other enrollees in a health plan greater than 4,000,000. (c) For the period of April 1, 2023, through December 31, 2023, the Medi-Cal per enrollee tax amount for each Medi-Cal taxing tier shall be as follows: (1) The Medi-Cal per enrollee tax for Medi-Cal taxing tier I shall be zero dollars ($0). (2) The Medi-Cal per enrollee tax for Medi-Cal taxing tier II shall be one hundred eighty-two dollars and fifty cents ($182.50). (3) The Medi-Cal per enrollee tax for Medi-Cal taxing tier III shall be zero dollars ($0). (d) For the period of April 1, 2023, through December 31, 2023, the other per enrollee tax amount for each other taxing tier shall be as follows: (1) The other per enrollee tax for the other taxing tier I shall be zero dollars ($0). (2) The other per enrollee tax for the other taxing tier II shall be one dollar and seventy-five cents ($1.75). (3) The other per enrollee tax for the other taxing tier III shall be zero dollars ($0). (e) For the 2024 calendar year, the Medi-Cal per enrollee tax amount for each Medi-Cal taxing tier shall be as follows: (1) The Medi-Cal per enrollee tax for Medi-Cal taxing tier I shall be zero dollars ($0). (2) The Medi-Cal per enrollee tax for Medi-Cal taxing tier II shall be two hundred seventy-four dollars ($274). (3) The Medi-Cal per enrollee tax for Medi-Cal taxing tier III shall be zero dollars ($0). (f) For the 2024 calendar year, the other per enrollee tax amount for each other taxing tier shall be as follows: (1) The other per enrollee tax for the other taxing tier I shall be zero dollars ($0). (2) The other per enrollee tax for the other taxing tier II shall be one dollar and seventy-five cents ($1.75). (3) The other per enrollee tax for the other taxing tier III shall be zero dollars ($0). (g) For the 2025 calendar year, the Medi-Cal per enrollee tax amount for each Medi-Cal taxing tier shall be as follows: (1) The Medi-Cal per enrollee tax for Medi-Cal taxing tier I shall be zero dollars ($0). (2) The Medi-Cal per enrollee tax for Medi-Cal taxing tier II shall be two hundred seventy-four dollars ($274). (3) The Medi-Cal per enrollee tax for Medi-Cal taxing tier III shall be zero dollars ($0). (h) For the 2025 calendar year, the other per enrollee tax amount for each other taxing tier shall be as follows: (1) The other per enrollee tax for the other taxing tier I shall be zero dollars ($0). (2) The other per enrollee tax for the other taxing tier II shall be two dollars ($2). (3) The other per enrollee tax for the other taxing tier III shall be zero dollars ($0). (i) For the 2026 calendar year, the Medi-Cal per enrollee tax amount for each Medi-Cal taxing tier shall be as follows: (1) The Medi-Cal per enrollee tax for Medi-Cal taxing tier I shall be zero dollars ($0). (2) The Medi-Cal per enrollee tax for Medi-Cal taxing tier II shall be two hundred seventy-four dollars ($274). (3) The Medi-Cal per enrollee tax for Medi-Cal taxing tier III shall be zero dollars ($0). (j) For the 2026 calendar year, the other per enrollee tax amount for each other taxing tier shall be as follows: (1) The other per enrollee tax for the other taxing tier I shall be zero dollars ($0). (2) The other per enrollee tax for the other taxing tier II shall be two dollars and twenty-five cents ($2.25). (3) The other per enrollee tax for the other taxing tier III shall be zero dollars ($0). (k) (1) The department may modify or make adjustments to any methodology, tax amount, taxing tier, or other provision specified in this article to the extent that it deems necessary to meet the requirements of federal law or regulations, to obtain or maintain federal approval, or to ensure federal financial participation is available or is not otherwise jeopardized, provided the modification or adjustment does not otherwise conflict with the purposes of this article, or result in an increase in the aggregate tax amounts projected to be collected under this article that the department, in its sole discretion, determines is significant. (2) If the department identifies that modification or adjustment is necessary in accordance with paragraph (1), the department shall consult with affected health plans, to the extent practicable, to implement that modification or adjustment. (3) In the event of a modification or adjustment made pursuant to this subdivision, the department shall notify affected health plans, the Department of Finance, the Joint Legislative Budget Committee, the Senate Committees on Appropriations, Budget and Fiscal Review, and Health, and the Assembly Committees on Appropriations, Budget, and Health within 10 business days of that modification or adjustment. (l) The department shall request approval from the federal Centers for Medicare and Medicaid Services as is necessary to implement this article. In making that request, the department may seek, as it deems necessary, a request for waiver of the broad-based requirement, waiver of the uniformity requirement, or both, pursuant to Section 433.68(e)(1) and (2) of Title 42 of the Code of Federal Regulations, or a request for waiver of any other federal law or regulation necessary to implement this article. (m) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement this article by means of provider bulletins, all-plan letters, or other similar instructions, without taking any further regulatory action. The department shall provide notification to the Department of Finance, the Joint Legislative Budget Committee, the Senate Committees on Appropriations, Budget and Fiscal Review, and Health, and the Assembly Committees on Appropriations, Budget, and Health within 10 business days after the above-described action is taken.

Cal. Welfare and Institutions Code - WIC § 14199.86. Section 14199.86.

(a) The tax assessed under this article shall become effective and operative on April 1, 2023, or the effective date, certified in writing by the director, of the federal approval necessary for receipt of federal financial participation, whichever occurs later. The director shall post the certification of federal approval on the department’s internet website and send a copy of the certification to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, the Legislative Counsel, the State Board of Equalization, the Department of Insurance, and the Executive Officer of the Franchise Tax Board. (b) This article, except for Section 14199.82 to the extent not in conflict with federal law, shall cease to be operative the first day of the calendar year beginning on or after the date the director, in consultation with the Director of Finance, determines that the taxes have not met the intent as outlined in Section 14199.80, or the department has not obtained the federal approval necessary for receipt of federal financial participation. The director shall post the determination on the department’s internet website and send a copy of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, the Legislative Counsel, the State Board of Equalization, the Department of Insurance, and the Executive Officer of the Franchise Tax Board. (c) This article, except for Section 14199.82 to the extent not in conflict with federal law, shall cease to be operative for any affected tax period or periods upon a final judicial determination made by any court of appellate jurisdiction or a final determination by the United States Department of Health and Human Services or the federal Centers for Medicare and Medicaid Services that the tax assessed pursuant to this article cannot be implemented for the affected tax period or periods, and any amount of the tax paid under this article with respect to the affected tax period or periods shall be refunded. The director shall post a notification of that final judicial or federal administrative determination on the department’s internet website and provide this notification to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, the Legislative Counsel, the State Board of Equalization, the Department of Insurance, and the Executive Officer of the Franchise Tax Board. (d) Notwithstanding this section, any tax and any applicable interest and penalties imposed under this article shall continue to be due and payable to the department until the tax and any applicable interest and penalties are fully paid. (e) Upon execution of the declaration described in subdivision (b) or (c), the director shall implement a plan, in consultation with the Department of Finance, to end the program consistent with the purpose of the article, including the recoupment of payments made under this article if required by a final judicial determination made by any court of appellate jurisdiction or a final determination made by the United States Department of Health and Human Services or the federal Centers for Medicare and Medicaid Services.

Cal. Welfare and Institutions Code - WIC § 14199.87. Section 14199.87.

(a) This article shall become operative on the effective date, certified in writing by the director, of the federal approval necessary for receipt of federal financial participation, as described in subdivision (a) of Section 14199.86 for purposes of assessing the tax under this article. (b) (1) All sections in this article, except for Section 14199.82 to the extent not in conflict with federal law, shall become inoperative on January 1, 2027, or on a date as specified in subdivision (b) or (c) of Section 14199.86, whichever occurs first. All sections in this article, except for Section 14199.82, are repealed on January 1, 2028. (2) Notwithstanding paragraph (1), any tax and any applicable interest and penalties imposed under this article shall continue to be due and payable to the department until the tax and any applicable interest and penalties are fully paid.

Source: CA Legislative Counsel Bulk DataURL: https://downloads.leginfo.legislature.ca.gov/pubinfo_2025.zipFetched: 6/27/2026