MCO Tax Renewal Promises Billions in Funding

In 2023, Governor Gavin Newsom signed the health budget trailer bill, which includes the renewal of the state's Managed Care Organization (MCO) Tax. This important financial mechanism will raise a total of $19.4 billion, with much of it being spent on the state’s health care infrastructure, including the largest Medi-Cal rate increase in California history. This investment will make meaningful strides toward achieving justice and equity by fulfilling Medi-Cal’s promise of access to health care for the more than 14 million Californians—including 6 million children—who rely on the program for their health care.

Included in the budget agreement, starting in 2024, provider rates will be increased to at least 87.5% of Medicare for primary care, maternity care and non-specialty mental health services. This action will restore funding from AB 97 rate reductions to those services, as well as build into the base rate Proposition 56 supplemental payments as part of the 87.5% threshold.

Starting in 2025, the MCO Tax will also provide a new infusion of $6 billion in new funding for the Medi-Cal program and the health care workforce. Specifically, there will be an annual appropriation of $1.38 billion in primary care rate increases, $1.15 billion in specialty care rate increases, $700 million to increase emergency department access (including $200 million for emergency department physicians), at least $500 million for family planning and reproductive health care, and $600 million for behavioral health facilities, including increasing inpatient psychiatric beds.

These rate increases will directly improve access to health care by supporting the Medi-Cal providers that are serving millions of patients daily in a variety of care settings.

The budget will also provide at least $75 million annually to train hundreds of additional physicians by expanding graduate medical education (GME) residency slots. This investment in our health care workforce is critical as California faces a massive physician shortage and we must be prepared to meet California’s growing health care needs.

Through previous state budgets, universal health care coverage will become a reality in California, a goal that NSMS and CMA have long advocated for. However, because Medi-Cal provider rates have remained stagnant for decades, millions of patients have been insured, but have gone without meaningful access to health care.

NSMS and CMA will continue to remain engaged as implementation details are worked out over the next months and years, and will continue to advocate on behalf of physicians to ensure the funding flows efficiently to providers.

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