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Provider Rates

Financing Medi-Cal's Future: The Growing Role of Health Care-Related Provider Fees and Taxes

Health Management Associates

November 2009

Recent California legislation imposed a health care-related provider fee on hospitals and extends to Medi-Cal managed care plans the state's existing gross premium tax on insurance. California already imposes provider fees on nursing facilities and intermediate care facilities for the developmentally disabled and, until recently, on Medi-Cal managed care organizations. Such taxes and fees on health care providers are also a key component of Medicaid financing in 43 other states.

Revenues from these fees and taxes are used to increase Medi-Cal reimbursement to providers, to finance quality improvement efforts, or to maintain or expand health care coverage. Funds made available by these assessments include federal matching funds the state receives when it uses such fee or tax revenue as the non-federal share of Medi-Cal or Healthy Families expenditures; California receives approximately $1.60 (until 2011) in federal matching funds for every dollar in non-federal Medi-Cal expenditures to health care providers.

This issue brief reviews federal requirements for health care-related provider fees and taxes and examines California's experience with provider fees under Medi-Cal. The brief also focuses on the recently enacted California health care-related hospital provider fees, including unresolved matters concerning implementation of the new fees.

Key findings discussed in this issue brief include:

• Provider fees or taxes are most often imposed on nursing facilities (33 states) and ICFs/DD (29 states), followed by hospitals (21 states) and managed care organizations (14 states).
• Provider tax or fee revenues, along with matching federal funds, are used to increase Medicaid provider reimbursement, to fund expansion of Medicaid coverage for the uninsured, or to expand the scope of Medicaid benefits. In some states, a portion of the fees is retained in the state's general fund.
• California's fees on nursing facilities, ICFs/DD, and managed care organizations brought in over $500 million in fiscal year 2008-09.
• Extension of the state's gross premium tax on insurance to Medi-Cal managed care plans will provide over $653 million ($236 million tax and $417 million federal) in revenue for Medi-Cal and Healthy Families during fiscal year 2009-10 and the first half of fiscal year 2010-11, avoiding the loss of health care coverage for hundreds of thousands of children.
• The newly enacted hospital fee will increase net annual reimbursement to all types of hospitals by nearly $2 billion and provide $320 million annually to fund children's health coverage.

The complete issue brief is available under Document Downloads below.

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Financing Medi-Cal's Future: The Growing Role of Health Care-Related Provider Fees and Taxes (240K)

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