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Health Net Is Exiting the California Group Market
Health Net will no longer offer small or large group coverage in CA. In-force groups terminate February 28, 2027. Your Claremont team is ready to help find alternatives. Call 800.696.4543 or email quotes@claremontcompanies.com.
If you’ve seen headlines about a new health insurance tax in California, here’s what’s actually happening and why it matters for the small group business you write.
What Is the MCO Tax?
The Managed Care Organization (MCO) tax is a tax the state levies on health plans, with the revenue used to draw down matching federal funds that support the Medi-Cal program — including provider rate increases in primary care, maternity care, and behavioral health. It’s existed in various forms since 2023 under Assembly Bill 119 and Assembly Bill 160, and the current version is set to expire December 31, 2026.
Why Is It Changing?
Under the current structure, California taxes Medi-Cal managed care plans at a higher rate than commercial plans. New federal rules — part of the 2025 federal budget reconciliation law — prohibit that kind of disparity going forward. States can no longer tax Medicaid plans more heavily than commercial ones. California has until January 1, 2027 to bring its tax structure into compliance.
What’s in the New Tax (SB 125)?
To comply, the state passed a redesigned MCO tax as part of the 2026-27 state budget (SB 125, signed into law in late June 2026). Key details:
What This Could Mean for Small Group Premiums
Because the new tax applies to commercial plans at the same rate as Medi-Cal plans — rather than a lower rate, as under the current structure — there’s meaningful potential for this cost to be passed through to small group premiums if carriers choose to do so. Public estimates have put the potential impact in the range of a few hundred dollars per year for a family of four, though actual impact will vary by carrier and hasn’t been confirmed by any of our carrier partners.
What’s Still Uncertain
This tax is not yet final. It requires federal approval from the Centers for Medicare & Medicaid Services (CMS) before California can begin collecting it, and that approval is not guaranteed. If approved, the earliest effective date would be January 1, 2027.
We’ll continue to monitor this and update you as carriers release specific rate guidance for 2027 plans.
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