Choices
Ballot Question
Proposition 35: Permanent MCO tax
Since 2009, California has imposed a Managed Care Organization (MCO) Provider Tax on certain health plans, such as Kaiser Permanente. However, this tax is not permanent and requires periodic reapproval by the Legislature. The MCO tax generates $7-8 billion annually and is charged to MCO providers for the Medi-Cal patients they serve. Although providers pay the tax, they are reimbursed with federal Medicaid dollars, effectively bringing additional federal funding into California to support the Medi-Cal program. The MCO tax is used by the state for two main purposes: 1. Funding existing Medi-Cal costs: The tax helps offset the need for General Fund spending on Medi-Cal, freeing up state funds for other priorities such as public services, infrastructure, and education. In short, the MCO tax reduces pressure on the state’s General Fund by leveraging federal dollars. 2. Increasing Medi-Cal funding: The tax also helps increase overall Medi-Cal funding, including raising pay rates for doctors and other healthcare providers. For example, planned provider rate increases for the next two-years will cost $4 billion annually. Half of the funding will come from the MCO tax. While Medi-Cal covers over a third of Californians, many struggle to find care due to the ongoing limited number of providers accepting Medi-Cal patients. While California lawmakers have steadily restored Medi-Cal services cut during the Great Recession, added new ones, and expanded eligibility to include all eligible Californians regardless of citizenship – many providers say these expansions have come without commensurate rate increases. As a result, the number of Medi-Cal providers has not kept pace with increased demand by patients. Prop 35 seeks to address this issue by increasing pay rates for certain Medi-Cal providers, though not all. Specifically, Prop 35 would provide rate increases to: • Behavioral health services, community hospital outpatient services, designated public hospitals, and graduate medical education. However, the following providers, who received rate increases in the 2024-2025 State budget, would have their increases eliminated should Prop 35 pass: • Continuous coverage for children ages 0-5, community-based adult services, community health workers, non-emergency medical transportation, pediatric day health centers, and private duty nursing. The LAO estimates that Proposition 35 would increase state General Fund costs by $1-2 billion annually in 2025 and 2026. This is because the proposition mandates that MCO tax revenues be used exclusively for the prescribed rate increases – preventing using MCO tax revenues towards support existing Medi-Cal costs as some are in the current state budget.