May Revision Proposes MCO Tax Renewal
Governor Newsom's 2026-27 May Revision proposed renewing the Managed Care Organization (MCO) tax — which expires Dec 31, 2026 and is one leg of the December 'triple cliff' already tracked — as a novel two-component structure: one component 'substantially similar' to the current Prop 35-compliant tax, and one 'substantially dissimilar' (outside Prop 35).
Projected revenue: ~$575M in 2026-27, rising to ~$2.3B/yr in 2027-28 and 2028-29. That revenue funds the Medi-Cal targeted rate increases for primary care, maternal care, and non-specialty mental health that act as the provider-payment floor for FQHC non-PPS visits.
Signed-budget context: the June 29 budget renewed the MCO-tax path and moved the major UIS/PPS clinic-payment loss to a July 1, 2027 planning horizon, so model MCO approval risk separately from the 2027 UIS/PPS sensitivity window.
Part of
- California's budget, the MCO tax and Proposition 35
The annual budget · The MCO tax and Proposition 35
Key points
- The MCO tax is the funding source for Medi-Cal primary-care rate increases — its renewal directly protects FQHC non-PPS visit revenue.
- Watch the June 15 budget vote + the federal approval track for the 'substantially dissimilar' component.
- Model MCO approval risk separately from the signed budget's July 1, 2027 UIS/PPS exposure.
Sources for this story
California Budget & Policy Center / DHCSSources for your board packet
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FQHC Talent. (2026, May 14). May Revision Proposes MCO Tax Renewal. Source: California Budget & Policy Center / DHCS. Retrieved September 28, 2026, from https://www.fqhctalent.com/intel/ca-may-revision-mco-tax-renewal-2026
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