CHA News

CHA Analysis: Proposed MCO Tax Spending Plan Maintains Key State Commitment

What’s happening: On Jan. 20, the California Department of Health Care Services (DHCS) published its spending plan on how the Newsom administration proposes to spend almost $2.7 billion in annual managed care organization (MCO) tax funds to improve Medi-Cal reimbursements. 

What else to know: CHA expects the proposal to be refined and finalized by July 2024 and implemented starting in 2025. 

As part of 2023-24 budget legislation, DHCS was required to publish its proposed spending plan for targeted rate increases and other investments starting in calendar year 2025 that will be funded with proceeds from the recently reauthorized MCO tax. After CHA’s initial review, the spending plan seems to uphold the state’s commitment to dedicate approximately $2.7 billion in MCO tax funds annually to Medi-Cal reimbursement increases. In general, this spending is proposed to be matched with federal Medicaid funding, raising the ultimate amounts going to eligible providers.  

For hospitals, DHCS proposes to implement various reforms to existing Medi-Cal payment methodologies in both the fee-for-service and managed care delivery systems, including the use of MCO tax funds to raise outpatient and emergency services reimbursement.  

The exact parameters for many of the proposed investments, including those specific to hospitals, are still under development and will be refined in the coming months through the budget process and DHCS-stakeholder engagement.  

CHA remains actively engaged on both fronts and will communicate updates as soon as information is available. The ultimate MCO tax spending initiatives are subject to both legislative and federal Medicaid approvals.    

For more information, please visit the DHCS web page.   

For questions, contact Robert Ducay, vice president, policy, at or Ben McGowan, vice president and legal counsel, policy, at