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First MCO Tax, Next Comes Rate-Setting

The Legislature last week reinstituted the managed care organization tax with a couple of twists favored by the health plans paying the tax.

The Brown Administration had hoped to funnel MCO tax money into the general fund indefinitely, but the final proposal included a sunset clause and linkage to Medi-Cal programs — in particular, to the duals demonstration project that targets the frail and elderly population of those Californians dually eligible for Medi-Cal and Medicare.

“The tax on managed care plans now will generate revenue to improve the duals program,” said Patrick Johnston, president and CEO of the California Association of Health Plans. “Otherwise, it’s just a diversion of federal Medicaid funds that’s not justified. We wanted to receive assurances the tax would go to Medi-Cal programs.”

The three-year sunset for the MCO tax coincides with the duals project timeline, Johnston said. The MCO tax expired at the end of 2012.

The next step comes next month, Johnston said, when the state sets rates.

“So the real test of whether the MCO tax can help the state’s ability to fund these Medi-Cal programs comes with the rates part,” Johnston said. Rates paid to insurers by the state will be established for two important populations — seniors and persons with disabilities and the dual demonstration rate.

“It’s a continuing challenge for the state to finance programs on a limited set of resources, and for the health plans’ duty to provide high-quality care at Medi-Cal rates,” Johnston said. “Historically [those rates] have been inadequate and so it’s difficult to secure a network of providers as large as everyone would want.”

Johnston said it would have been better to have the rate-setting process ahead of the budget decision, so legislators would know exactly what they’re voting for.

“We would have preferred to have a rate-setting process that’s timely and transparent, so the evidence can be available to the Legislature to pass a budget and see that Medi-Cal beneficiaries are going to be fully served, and the health plans that make it happen are going to have stable funding.”

The MCO tax should help provide stable funding. The money generated by the state tax is matched with federal dollars and a lot of that combined money ends up going back to the health plans in the form of Medi-Cal payments.

The SPD transition to Medi-Cal managed care has been going on for two years, with mixed results, Johnston said. “Plans of all different types and sizes have had all kinds of difficulty serving that population,” he said. “Going forward, plans can’t continue to receive less in payment to serve the SPD’s, and with the duals, we don’t want a repeat of the SPD experience.”  

So come talk to him in July, Johnston said, for a more complete picture of how the health plans view the Medi-Cal funding picture.

“I would characterize the budget agreement as an important step,” Johnston said. “Now there is more to do.”

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