Source: United States House of Representatives – Congressman David G Valadao (CA-21)
WASHINGTON – Today, Congressman David Valadao (CA-22) released the following statement in response to the Centers for Medicare & Medicaid Services (CMS) announcement of final rulemaking to implement the Managed Care Organization (MCO) tax provision established in the Working Families Tax Cut (H.R. 1). The final rule provides a six-month transition period for California’s MCO tax to comply with the rulemaking on provider tax uniformity.
“After months of conversations with CMS Administrator Dr. Oz—and inviting him to the Central Valley to see our healthcare challenges firsthand—I’m encouraged that CMS has agreed to provide a six-month transition period before implementing California’s new Managed Care Organization (MCO) tax rule,” said Congressman Valadao. “The MCO tax was created to increase California’s contributions to the Medicaid program, but for years the state has misused the revenue to support other government expenses instead of strengthening the healthcare system. California needs time to adjust its budget priorities, and this transition period maintains a $2.3 billion funding stream while giving the state necessary stability, according to CMS analysis. This is an important step, and I look forward to continuing to partner with CMS as they work to thoughtfully implement the reforms included in H.R. 1.”
Background:
Federal law requires states to share responsibility with the federal government for financing Medicaid, including by contributing a portion of the non-federal share of program costs. The Managed Care Organization (MCO) tax allows states like California to draw down additional funds to help support their state programs. This rule revises how states may structure provider taxes but provides California with a six-month on-ramp to comply with the final rule, which requires the tax rate on Medicaid and non-Medicaid businesses to be uniform. The final rule’s extension of the transition deadline from July 1, 2026 to December 31, 2026 preserves $2.3 billion in federal revenue for the state of California. This amount is based on a CMS estimate of the federal revenue attributable to extending the state’s current provider tax structure through the end of 2026.
States, including California, use the MCO tax to draw down matching federal funds to help support their Medicaid programs. California’s Medicaid program, known as Medi-Cal, faces significant state-level challenges, including low reimbursement rates for providers. Compounding these issues, the state has mismanaged the MCO tax to supplement California’s General Fund instead of strengthening care for Medicaid patients and supporting the providers who serve them.
Read more about the rule here.
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