NY MCO Provider Tax: Rates, Federal Approval, and Penalties

The New York MCO provider tax is a quarterly, per-member-per-month assessment on insurers, HMOs, and managed care organizations doing business in the state, with rates that run from $1.50 to $126 per enrolled member per month depending on the type of coverage and the size of the plan. Codified at Public Health Law § 2807-ff, the tax is projected to bring in roughly $5.9 billion across state fiscal years 2025–26 and 2026–27, and its primary purpose is to generate state Medicaid spending that qualifies for federal matching funds.1New York State Comptroller. Report on the State Fiscal Year 2025-26 Executive Budget

Which Health Plans Owe the Tax

The assessment applies to any insurer, HMO, or managed care organization that offers one of five categories of coverage in New York:2New York State Senate. New York Public Health Law 2807-FF – New York Managed Care Organization Provider Tax

  • Medicaid managed care under Social Services Law § 364-j.
  • Child Health Plus coverage under Title 1-A of Article 25 of the Public Health Law.
  • Essential Plan coverage under Title 11-D of Article 5 of the Social Services Law.
  • Plans purchased through the New York State of Health marketplace.
  • Other comprehensive coverage regulated under Insurance Law Articles 32, 42, and 43, or Public Health Law Article 44.

That last catch-all is broad. It pulls in most commercial health plans sold in the state. If a plan provides comprehensive medical coverage to New Yorkers, it almost certainly sits inside one of the five groups.

How the Rates Work

The tax uses a per-member-per-month structure, but the rates are anything but uniform. Two things move the number: what kind of coverage the member has, and how many members the plan enrolls in that category. Larger plans pay lower per-member rates within each tier, and Medicaid members carry far higher rates than commercial members.2New York State Senate. New York Public Health Law 2807-FF – New York Managed Care Organization Provider Tax

Medicaid Member Months

Medicaid rates are the highest because this is where the federal matching mechanism generates the most return:

  • Under 250,000 member months: $126 PMPM.
  • 250,000 to under 500,000 member months: $88 PMPM.
  • 500,000 or more member months: $25 PMPM.

A plan with 600,000 Medicaid member months in a calendar year pays $25 for each. A smaller plan with 100,000 Medicaid member months pays $126 for each. The volume discount is steep, and the largest Medicaid managed care plans carry a significantly lower per-member burden as a result.

Essential Plan Member Months

  • Under 250,000 member months: $13 PMPM.
  • 250,000 or more member months: $7 PMPM.

Non-Essential, Non-Medicaid Member Months

This category covers Child Health Plus enrollees, marketplace plan members, and everyone in other commercial comprehensive coverage:

  • Under 250,000 member months: $2 PMPM.
  • 250,000 or more member months: $1.50 PMPM.

To calculate its liability, a plan multiplies its member months in each category by the applicable rate. A plan offering both Medicaid managed care and commercial products calculates each product line separately and adds the totals. The gap between Medicaid rates and commercial rates is deliberate. Medicaid members are taxed at rates up to 84 times higher than commercial members, and the Medicaid tier is where the financial engineering happens.

Why New York Levies the Tax

The MCO tax looks like a straightforward state levy, but its real function is to pull down federal Medicaid dollars. The state collects the tax from health plans and counts that revenue as part of its Medicaid spending. Because Medicaid costs are shared between the state and federal government, every dollar the state spends on Medicaid triggers a federal match. The MCO tax revenue effectively becomes Medicaid spending that qualifies for federal reimbursement.1New York State Comptroller. Report on the State Fiscal Year 2025-26 Executive Budget

New York also uses part of the revenue to offset costs the tax imposes on health plans, in what the Division of the Budget calls “state share tax offsets.” Those offsets themselves count as additional Medicaid spending, which generates more federal matching. The projected receipts are roughly $3.3 billion in state fiscal year 2025–26 and $2.6 billion in 2026–27. New York has also used $500 million in projected MCO tax revenue to avoid breaching the Medicaid Global Cap in each of those fiscal years.

Federal Approval and the Rules That Constrain It

The state cannot simply impose an MCO tax and start drawing federal matching funds. The Centers for Medicare and Medicaid Services must approve any health care–related tax first. Federal law under Section 1903(w) of the Social Security Act requires that the tax be “broad-based” and “uniform.”3New York State Department of Health. CMS Approval Letter for New York Health Care Related Tax

Broad-based means the tax applies to all non-federal, non-public providers within a recognized provider class. Uniform means every provider in that class pays the same rate. Federal regulations recognize 19 provider classes, and managed care organizations are one of them, expanded by the Deficit Reduction Act of 2005 to include all managed care organizations rather than just Medicaid-specific ones.4Congressional Research Service. Medicaid Provider Taxes

New York’s MCO tax is plainly not uniform. Medicaid members are taxed at rates dramatically higher than commercial members, and volume tiers mean plans of different sizes pay different amounts. So the state has to apply for a waiver of the broad-based and uniformity requirements, and the statute directs the Commissioner of Health to seek those waivers from CMS.2New York State Senate. New York Public Health Law 2807-FF – New York Managed Care Organization Provider Tax

To get a waiver, the state must show the tax is “generally redistributive,” meaning it does not simply route Medicaid payments back to the same providers who paid the tax. CMS prohibits “hold harmless” arrangements where taxpayers get their tax costs back through redirected Medicaid payments.5Centers for Medicare and Medicaid Services. Health Care-Related Taxes and Hold Harmless Arrangements

The Safe Harbor Threshold and What Changes in 2027

Federal rules also cap how much revenue a provider tax can raise relative to the taxed providers’ net patient revenue. A tax that stays below 6 percent falls within a “safe harbor” and faces less scrutiny about whether it functions as a hold harmless arrangement.6Medicaid and CHIP Payment and Access Commission. Health Care-Related Taxes in Medicaid

That threshold is changing. The One Big Beautiful Bill Act, signed on July 4, 2025, introduces three provisions that hit New York’s tax:

  • No new provider taxes. States cannot create new provider taxes after the enactment date; any tax not already in effect faces a zero percent ceiling.
  • Safe harbor phasedown for Medicaid expansion states. Starting in federal fiscal year 2028, the threshold drops from 6 percent to 5.5 percent, then falls half a percentage point each year until it reaches 3.5 percent in FY 2032. Nursing facilities and intermediate care facilities are exempt from this phasedown.
  • Non-expansion states frozen. States that did not expand Medicaid keep the rate they had in effect on July 4, 2025.

New York expanded Medicaid, so it faces the full phasedown. As the safe harbor drops, the state may need to lower its MCO tax rates or restructure the assessment to stay within federal limits, which would constrain the very matching revenue the tax was built to generate.

Payment Schedule and Penalties

Plans owe the tax quarterly, though the Commissioner of Health can require more frequent payments. Late payments trigger interest at the rate set in Public Health Law § 2807-j. The Commissioner can waive some or all of the interest if a plan shows that paying the full amount on time would cause significant financial hardship or disrupt services to Medicaid beneficiaries.2New York State Senate. New York Public Health Law 2807-FF – New York Managed Care Organization Provider Tax

Separate from the payments, every plan must submit enrollment and financial reports in a format the Commissioner specifies. If a plan fails to file within 60 days of the due date after being notified of the delinquency, the Commissioner can impose a civil penalty of up to $10,000 per failure. Good cause for the delay is a defense.

Effect on Policyholder Premiums

Any tax on health plans raises the question of whether members end up paying it. For Medicaid and Essential Plan enrollees, generally no. Those programs have fixed cost-sharing set by the state, and plans cannot pass tax costs to members through premium increases on government-sponsored coverage.

Commercial policyholders are a different story. The non-Medicaid, non-Essential rate of $1.50 to $2.00 per member per month is modest on its own, but across a plan’s full commercial book it adds up. Insurers that want to reflect the cost in premiums have to submit rate filings to the New York Department of Financial Services for prior approval. DFS reviews whether the increase is actuarially justified and whether the MCO tax legitimately factors into the plan’s cost structure.

The prior approval requirement means plans cannot pass the tax through overnight. DFS can reject rate requests it considers excessive or insufficiently supported, and competitive pressure in the commercial market may lead some insurers to absorb part of the cost. Over time, the tax tends to show up in commercial premiums to some degree; the open questions are how much, and how fast.