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California Republicans urge HHS to block Medicaid insurer tax
California’s expanded managed care organization tax needs CMS sign-off, and federal rules under the July 2025 OBBBA law would restrict the state’s current waiver-based approach.
Six Republican members of the US House have urged the Trump administration to reject federal approval for California’s revamped Medicaid managed care organization, or MCO, tax, warning it will drive up costs for both families and health insurers. Insurance Business reports the lawmakers sent a letter to Health and Human Services Secretary Robert F. Kennedy Jr. and CMS Administrator Dr. Mehmet Oz asking them to deny approval of the state tax before it can take effect.
The outlet said the request hinges on CMS sign-off, which is required because the state’s MCO tax, in some form since 2005, uses provider-tax revenue to draw down additional federal Medicaid matching dollars and fund higher Medi-Cal provider payments. Under longstanding federal rules, provider taxes generally must be broadly and evenly applied, and California has relied on a federal waiver to charge different rates tied to how much Medicaid business a plan does.
Insurance Business noted that a federal reconciliation law signed in July 2025, the One Big Beautiful Bill Act, restricts that waiver pathway. The law directs CMS to stop treating differentiated, waiver-dependent provider taxes as permissible once they effectively lower rates for plans with less Medicaid business and raise them for plans with more, a structure regulators say no longer counts as generally redistributive.
The outlet added that CMS has issued a final rule implementing the restriction and also proposed bringing state Medicaid managed care insurer taxes under tighter federal oversight. Under the new framework, California may need to restructure the tax, but the federal approval process is not yet guaranteed.