A service of the California Health Care Foundation

Managed Care Tax Left Hanging

The California Legislature, now adjourned until Jan. 4, passed a flurry of bills in the last days of session, but restructuring the managed care organization tax was not among those final orders of business. 

That leaves the Legislature to take up the issue in 2015, just months before the current MCO tax expires. That expiration will leave a $1.1 billion hole in the Medi-Cal budget — a deficit that was the central reason the governor in June convened the special session on health care.

“It is deeply disappointing that the health plans could not come together to support this proposal and the Republican legislators have refused to consider any tax adjustments at all,” Diana Dooley, director of the state Health and Human Services agency, said in a written statement. 

“Without additional revenue,” Dooley said, “there will be no alternative to reductions in our health care spending, jeopardizing the significant gains we have made through our implementation of the Affordable Care Act.”

In July, federal officials made it clear it would not allow the current MCO tax formula California uses. With the current tax, only managed care organizations participating in Medi-Cal are taxed. California gets $1.1 billion in federal matching dollars on that money and then the MCOs are reimbursed through Medi-Cal services they provide. Federal officials said if California wants to continue taxing managed care organizations the state must tax all of them. 

That didn’t sit well with the MCOs that don’t participate in Medi-Cal. The first proposal had the non-Medi-Cal MCOs footing a $680 million bill, then that number dropped to $320 million. The state sweetened that offer by adding significant tax cuts for those affected health plans, dropping the financial hit on non-Medi-Cal MCOs to roughly $118 million. 

But even with the tax cut offset, that’s still a new tax of $118 million on the health plans that don’t participate in Medi-Cal. 

Charles Bacchi, president and CEO of the California Association of Health Plans, said funding for Medi-Cal is important but he wants to wait until a new MCO tax solution can be hammered out.

“Throughout the year, health plans have worked constructively with all parties so we do not lose critical funding for Medi-Cal, while preventing significant imbalance in the health care marketplace and minimizing the impact on premiums. It has been a difficult task,” Bacchi said in a statement.

He said the Legislature still has time at the start of the year to figure out a better funding strategy, since the current MCO tax doesn’t expire until June 2016. 

Dooley said the time to act is now.

“We did everything we could to make this work,” she said. “We put a good plan on the table.”

Dooley hopes legislators can still help broker a deal with the health plans, even though the regular session won’t meet again until Jan. 4 — in part because this item is part of the special session, which didn’t adjourn when the regular session did.

“With the special session still open,” Dooley said, “it is now up to the plans which refused to endorse this proposal, and the Republicans who refused to consider it, to stop drawing lines and start putting solutions on the table.”

Categories: Capitol Desk

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