Administration plans dual MCO tax submission amid Prop 35 and HR 1 constraints; estimate ~$8.85 monthly per enrollee

The Director explained the administration is navigating competing constraints from Proposition 35 and federal HR 1 when designing a managed‑care organization (MCO) tax. The administration will submit a plan that is substantially similar to Prop 35 but expects that that form may not be federally compliant under HR 1, so it will include alternate provisions in the same CMS submittal that align with the new federal requirements.

Why this matters: Because HR 1 and Prop 35 set different limits and requirements for how commercial plans and Medicaid plans are treated, the administration said it needs to include alternate provisions to preserve federal approval options while also reflecting state statutory requirements.

The Director said one approach could result in commercial plans being charged at a higher level than under existing Prop 35 constructs; the administration estimated that the MCO tax proposal would amount to about $8.85 per month per enrollee in the scenario described. Committee members asked whether the proposal raises a commercial cap or changes what can be raised from the commercial side; the Director said HR 1’s federal requirements affect those calculations and that the administration is proposing provisions intended to meet both sets of constraints where possible.

The Director said both variants will be part of the same submission to CMS, with a Prop 35–compliant version and an alternate version that reflects HR 1. The administration acknowledged that some parts of a Prop 35‑style plan may be at risk of nonapproval at the federal level and is preparing the alternate provisions accordingly.

Next steps: The administration will include both variants in the CMS submittal and continue discussions with stakeholders and federal officials.