Effort Ramps Up To Establish MCO Flat Tax as Legislature Reconvenes

California legislators come back to work in Sacramento on Monday after summer recess. One of the bigger items on the legislative plate is the special session on health care spending convened last month by Gov. Jerry Brown (D).

The special session’s primary purpose has been to address the possible $1.1 billion shortfall in next year’s budget because of the impending loss of the managed care organization tax. The governor has suggested one way to make up that loss, but so far there is only one bill in circulation that offers a solution to the problem.

Assembly member Marc Levine (D-San Rafael) is holding a press conference Monday in the Capitol Building, along with appearances expected from at least eight other legislators, to discuss ABX2-4, which would raise just under $1.9 billion from a flat MCO tax.

That money could replace the $1.1 billion in current MCO tax funding, it could fund about $200,000 for an ongoing 7% hike in In-Home Supportive Services hours the state is required to make — and still have some cash left over for a 10% increase in developmental services funding and restoration of the 10% Medi-Cal provider reimbursement rate cut from 2011.

“There is no other proposal on the table right now,” Levine said. “We want to resolve this issue now rather than pushing this off till next year, when it could create a billion-dollar deficit.”

Federal officials have made it clear that the MCO tax cannot stand in its current form. The state currently taxes MCOs that participate in Medi-Cal then matches the MCO contributions federal dollars and eventually reimburses MCOs in the form of Medi-Cal provider payments. Federal officials said any MCO tax would need to be broader-based than that.

“That blows a huge hole in our budget,” Levine said.

You can’t get much broader than a flat tax on all managed care organizations. The proposal would dun insurers $7.88 per person per month. The federal insistence on evenly-applied taxes means that current insurers who pay the MCO tax likely will end up paying less, since more insurers would be taxed and share that tax burden. Insurers may pass that increased cost on to consumers.

The governor’s suggestion for a revised MCO tax is more of a tiered system of taxation.

“You look at all of our societal problems, and health care is something we really need to get right,” Levine said. “There are dire consequences if we don’t resolve this issue.”

Categories: Capitol Desk