AB125 - Medi-Cal: managed care organization provider tax.

Amended IN Senate June 12, 2026 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 125 Introduced by Assembly Member Gabriel Committee on Budget (Assembly Members Gabriel (Chair), Addis, Ahrens, Alvarez, Bennett, Bonta, Caloza, Connolly, Fong, Haney, Hart, Jackson, Lee, Ortega, Patel, Petrie-Norris, Quirk-Silva, Ramos, Rogers, Schiavo, Schultz, Sharp-Collins, Solache, Stefani, Ward, and Wilson) January 08, 2025 An act relating to the Budget Act of 2025. to amend Section 14105.201 of, to add Article 7.2 (commencing with Section 14199.90) to Chapter 7 of Part 3 of Division 9 of, and to repeal Sections 14199.90, 14199.91, 14199.93, 14199.94, 14199.95, 14199.96, and 14199.97 of, the Welfare and Institutions Code, relating to Medi-Cal, and making an appropriation therefor, to take effect immediately, bill related to the budget. LEGISLATIVE COUNSEL'S DIGEST AB 125, as amended, Committee on Budget. Budget Act of 2025. Medi-Cal: managed care organization provider tax. Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is in part governed by, and funded pursuant to, federal Medicaid program provisions. Existing law imposes a managed care organization (MCO) provider tax on licensed health care service plans and managed care plans contracted with the department. Under existing law, the tax revenues, less refunds, are deposited in the Managed Care Enrollment Fund, to be available to the department, upon appropriation, for the purpose of funding increased capitation payments to Medi-Cal managed care plans, the nonfederal share of Medi-Cal managed care rates, and transfers to the Medi-Cal Provider Payment Reserve Fund, as specified. Existing law generally makes these provisions inoperative on January 1, 2027, and repeals them on January 1, 2028, with an exception for certain provisions relating to the Managed Care Enrollment Fund. Existing law, the Protect Access to Health Care Act of 2024, an initiative measure enacted by Proposition 35, as approved by the voters at the November 5, 2024, statewide general election, extends the imposition of the MCO provider tax beyond January 1, 2027, subject to receipt of any necessary federal approvals. The act sets forth various conditions on how the tax revenue is spent for the Medi-Cal program. The act establishes the Protect Access to Health Care Fund and certain subfunds and accounts, and abolishes the Managed Care Enrollment Fund and the Medi-Cal Provider Payment Reserve Fund once all remaining encumbered moneys in those latter funds have been exhausted. Existing federal law, enacted on July 4, 2025, sets forth various changes to the Medicaid program, including, among others, certain limitations on permissible health care-related taxes, known as provider taxes, with regard to broad-based and uniformity standards and tax rates. This bill would state legislative intent to implement an MCO provider tax that is not subject to the Protect Access to Health Care Act of 2024 and that meets certain goals, including compliance with federal requirements and funding for the Medi-Cal program. The bill would impose an MCO provider tax on a health plan, as defined, for the 2027, 2028, and 2029 calendar years. The bill would prohibit the department from collecting the tax until the Director of Health Care Services certifies that the tax is a federally permissible health care-related tax meeting specified federal requirements, or until the department receives federal approval that the tax is a permissible health-care related tax, as specified. The bill would set the tax amount at $8.85 per countable enrollee per month, unless that amount is modified by the department under certain conditions. The bill would deposit the tax revenues, less refunds, in the Medi-Cal Stability Fund, which the bill would create. Under the bill, deposited moneys would be continuously appropriated to the department for the purpose of funding the department’s administrative costs, the nonfederal share of increased capitation payments to Medi-Cal managed care plans, the nonfederal share of certain Medi-Cal payments, and the nonfederal share of Medi-Cal managed care rates for certain health care services, as specified. The bill would require the department to request federal approval as is necessary to implement these MCO provider tax provisions. The bill would set forth various procedures regarding the inoperative status of these provisions if the tax was determined to be noncompliant or was rejected, as specified. The bill would make these MCO provider tax provisions inoperative on January 1, 2031, and would repeal them on January 1, 2032, with an exception for certain provisions relating to the Medi-Cal Stability Fund. Existing law establishes a formula for reimbursement rates of certain primary care services, obstetric care services, doula services, and outpatient mental health services, within the Medi-Cal program, in part funded by the above-described Medi-Cal Provider Payment Reserve Fund. This bill would designate the Medi-Cal Stability Fund as a funding source for the nonfederal share of those payments, as described above. The bill would make changes to the methodology for Medi-Cal managed care plans to reimburse an eligible provider furnishing those services. The bill would also delete certain inoperative provisions regarding a community health worker being an eligible provider type for the above-described reimbursement rates. This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2 / 3 of the membership of each house of the Legislature. This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill. This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2025. Digest Key Vote: MAJORITY 2/3 Appropriation: NO YES Fiscal Committee: NO YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 14105.201 of the Welfare and Institutions Code is amended to read: 14105.201. (a) (1) Notwithstanding any other law, for dates of service no sooner than January 1, 2024, or on the effective date of any necessary federal approvals as required by subdivision (e), (d), whichever is later, the reimbursement rates for the following services, as determined in accordance with subdivision (g), (f), shall be the greater of 87.5 percent of the lowest maximum allowance established by the federal Medicare Program for the same or similar services or the level of reimbursement, which shall account for, and be inclusive of, the exemption of these services from payment reductions pursuant to Section 14105.192, and supplemental payments or rate increases, or both, as applicable, under the California Healthcare, Research and Prevention Tobacco Tax Act of 2016 (Proposition 56, an initiative measure approved at the November 8, 2016, statewide general election) that were implemented with funds from the Healthcare Treatment Fund, as established pursuant to subdivision (a) of Section 30130.55 of the Revenue and Taxation Code, in effect as of December 31, 2023, as determined by the department: (A) Primary care services, including those provided by physicians or nonphysician health professionals, as defined in Section 51170.5 of Title 22 of the California Code of Regulations. (B) Obstetric care services, and doula services as described in Section 14132.24. (C) Outpatient mental health services that are not the financial responsibility of county mental health plans operating pursuant to Chapter 8.9 (commencing with Section 14700). (2) The department shall annually review and revise the reimbursement rates in accordance with paragraph (1) based on changes to the lowest maximum allowance established by the federal Medicare Program for the same or similar services. Any revisions to the reimbursement rates determined in accordance with paragraph (1) shall be considered as part of the annual budget development process and take effect beginning on January 1, 2025, and each subsequent January 1 thereafter, of the calendar year following the department’s annual review. (3) The department shall develop and implement a methodology for establishing reimbursement rates or payments for the services described in paragraph (1) where there is no specified maximum allowable rate established by the federal Medicare Program. The department shall review this methodology annually and may, in its sole discretion, modify the methodology on a prospective basis. (b) (1) (A) For contract periods during which subdivision (a) is implemented, each Medi-Cal managed care plan shall reimburse a network provider furnishing the services subject to subdivision (a) at least the amount the network provider would be paid for those services in the Medi-Cal fee-for-service delivery system, as set forth by the department in the approved Medi-Cal State Plan and guidance issued pursuant to subdivision (f). (e). (B) Medi-Cal managed care plans that reimburse a network provider furnishing the services identified in subparagraphs (A) to (C), inclusive, of paragraph (1) of subdivision (a) on a capitated basis shall ensure that the network provider receives reimbursement that is equal to, or projected to be equal to, the level of reimbursement required in subparagraph (A) for the applicable services and, as applicable, shall increase reimbursement to the network provider to comply with this subparagraph. (2) (A) The department shall direct Medi-Cal managed care plans to reimburse eligible providers furnishing the services subject to subdivision (a) in accordance with paragraph (1) using one or more methodologies pursuant to Section 438.6(c) of Title 42 of the Code of Federal Regulations, and as set forth by the department in guidance issued pursuant to subdivision (e). (B) Commencing with the first managed care rating period for which the department documents in the annual rate certification that the base period data submitted and attested to by Medi-Cal managed care plans that is used by the department for the development of capitation rates for the Medi-Cal managed care delivery system reflects the increased reimbursement levels for services subject to subdivision (a), the department may elect to discontinue some or all of the directed payment methodologies implemented pursuant to subparagraph (A) following consultation with affected stakeholders and the department’s determination that the methodologies are administratively burdensome and likely to be no longer necessary to achieve, in aggregate, the reimbursement levels described in paragraph (1). (2) (3) The department may require Medi-Cal managed care plans and network providers of the applicable services to submit information the department deems necessary to implement and monitor compliance with this subdivision, at the times and in the form and manner specified by the department. (c) (1) The payments implemented pursuant to subdivisions (a) and (b) shall be supported by the managed care organization provider tax revenue, pursuant to Article 7.1 7.2 (commencing with Section 14199.80), 14199.90), or other state funds appropriated to the department as the state share for this purpose, including, but not limited to, funds transferred to the Medi-Cal Provider Payment Reserve Fund in accordance with Sections 14105.200 and 14199.82 and to the Healthcare Treatment Fund in accordance with subdivision (a) of Section 30130.55 of the Revenue and Taxation Code. (2) Notwithstanding any other law, increases to fee-for-service reimbursement rates and managed care directed payments that are made pursuant to subdivisions (a) and (b) constitute increases in accordance with subdivision (a) of Section 30130.55 of the Revenue and Taxation Code, and all other fee-for-service supplemental payments and managed care directed payments for the services identified in subparagraphs (A) to (C), inclusive, of paragraph (1) of subdivision (a) that are made pursuant to subdivision (a) of Section 30130.55 of the Revenue and Taxation Code shall be discontinued on the date the payments implemented pursuant to subdivisions (a) and (b) are effective. (d) (1) Effective for dates of service on or after January 1, 2025, community health workers shall be an eligible provider type for the rate increases effective pursuant to this section. (2) In establishing the reimbursement rate for community health workers pursuant to subdivision (a), the department shall set rates equal to 100 percent of the lowest maximum allowance established by the federal Medicare Program for the same or similar services. (3) If the voters approve the addition of Chapter 7.5 (commencing with Section 14199.100) to this part at the November 5, 2024, statewide general election, this subdivision shall be inoperative as of January 1, 2025. (e) (d) In implementing this section, the department shall seek any federal approvals that it deems necessary. This section shall be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized. (f) (e) Notwithstanding the rulemaking provisions of 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 section, in whole or in part, by means of all-county letters, plan letters, provider bulletins, information notices, or other similar instructions, without taking any further regulatory action. (g) (f) The department shall develop the methodologies and parameters for the payments implemented pursuant to subdivisions (a), (b), and (d), (a) and (b), and may revise the methodologies and parameters, for purposes including, but not limited to, obtaining or maintaining any necessary federal approvals as required by subdivision (e). (d). (h) (g) For purposes of this section, the following definitions shall apply: (1) “Community health workers” has the same meaning as set forth in the Medi-Cal State Plan. (2) (1) “Medi-Cal managed care plan” has the same meaning as that term is defined in subdivision (j) of Section 14184.101. (3) (2) “Network provider” has the same meaning as that term is defined in Section 438.2 of Title 42 of the Code of Federal Regulations. (i) (h) The Legislature finds and declares that this section, as it pertains to funding made available for expenditure pursuant to subdivision (a) of Section 30130.55 of the Revenue and Taxation Code, is consistent and in accordance with the California Healthcare, Research and Prevention Tobacco Tax Act of 2016 (Proposition 56, an ini [Text truncated for display. Full text available on Congress.gov.]