Lawmakers Pass Managed Care Tax
Legislators passed a bill this week that will expand the state's tax on managed care health plans but is also expected to provide more federal matching funds for the Medi-Cal program.
The bill was required to maintain a flow of matching Medi-Cal funds from the federal government. It notified California two years ago that the old formula the state was using to draw down matching funds was out of compliance with current requirements.
The new law taxes all managed care organizations, replacing a tax that had only been levied against payers that were in the Medi-Cal managed care business. It is expected to draw down about $1.4 billion a year in matching funds from the federal Medicaid program, about 40% more than the current tax, which will be phased out later this year.
Revamping the tax required Republican votes because of the two-thirds majority required to pass new taxes into law. In order to receive the votes, the Democratic majority included many concessions to the health plans. Among them was $370 million in breaks on other premium and corporate taxes on insurers that were included in other bills. There was also $240 million to reduce the liability associated with paying healthcare benefits for state employees; and $173 million to pay down transportation loans.
However, the legislative package also included more than $300 million to beef up community-based developmental services, and $123 million to make up for rate freezes put into place several years ago for skilled nursing facilities that are directly operated by hospitals.
“(The) deal was the result of months of negotiations, and once again proved that politics is the art of the possible,” said Assemblyman Rob Bonta, D-Alameda. which sponsored the legislation. “California’s existing managed care organization tax needed to be restructured, and we did so while providing critical funding for Medi-Cal.”
The passage of the bill was greeted with approval from both California's payer and provider communities – a rare instance where both are in agreement.
“The federal government presented us with a Herculean challenge and a billion dollar threat to our Medi-Cal program when they changed the rules for our MCO tax. Health plans showed dedication and determination – going back to the drawing board and negotiating time and again to protect Medi-Cal and the affordability of health coverage for employers and families. The tax plan passed by the Legislature achieves these shared goals,” said Charles Bacchi, president of the California Association of Health Plans. “We appreciate the willingness and patience of the administration and legislative leaders to listen to the challenges posed by earlier formulas and for continuing to work with health plans to find a workable solution.
“The reformed funding program will stabilize the state’s General Fund costs for Medi-Cal and provide much needed funding for hospital-based skilled nursing facilities as well as programs that support the developmentally disabled,” said California Hospital Association Chief Executive Officer C. Duane Dauner.
The passage of the tax and its signing into law by Gov. Jerry Brown is not the end of its saga. It will still require approval by the federal government.
State Sen. Ed Hernandez, who chairs the Senate health committee and acknowledged the complexity of the legislation to the publication California HealthLine, said it would be “too depressing to think about” if the federal government nixed the carefully curated proposal.
