MCO Tax Replacement Efforts Ongoing, Could Extend to 2016

California lawmakers have scheduled an informational hearing for Dec. 1 as part of their ongoing efforts to rework the state's expiring managed care organization tax, Kaiser Health News reports (Feder Ostrov, Kaiser Health News, 11/25).

Background

The current MCO tax expires in June 2016. In July, federal officials said they would not reauthorize the formula California uses.

With the current tax, only MCOs participating in Medi-Cal -- the state's Medicaid program -- are taxed. California gets $1.1 billion in federal matching dollars on that money and then the MCOs are reimbursed through the Medi-Cal services they provide. Federal officials said if California wants to continue taxing MCOs, the state must tax all of them.

The California Legislature adjourned for the year without passing a bill to restructure the tax, leaving 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.

Last month, Brown vetoed several bills, citing the state Legislature's failure to rework the expiring MCO tax and the resulting budget deficit. In a veto message, Brown said, "Without the extension of the [MCO] tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts" (California Healthline, 11/20).

Comments

According to KHN, some observers have said they do not expect a deal on a new tax method until mid-2016, by the time the current tax is scheduled to expire.

Shannon McConville, research associate at the Public Policy Institute of California, said, "In some ways, people are willing to walk away right now because they still have time."

However, Maya Altman, CEO of Health Plan of San Mateo, said the efforts could be expedited by the looming budget shortfall. She said, "It's unfortunate we got to this place, but when the governor's budget comes out, there will be tremendous pressure" to rework the tax.

Meanwhile, Anthony Wright, executive director of Health Access California, said, "While it's possible that this becomes a stalemate, it's also possible that the health insurance industry acknowledges that a billion dollars in cuts is too much of an apocalypse to not grudgingly come to some kind of compromise." He added, "Nobody wants to see what a billion dollars of cuts to our health care system looks like" (Kaiser Health News, 11/25).