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New Tobacco Tax Bill Touches All Bases

A bill introduced on Wednesday in the California Legislature’s special session on health care touches on almost all of the health policy concerns originally raised by the governor when he convened the special session in June.

SBX2-14, by Sen. Ed Hernandez (D-West Covina), would impose a $2-a-pack tax on cigarettes and an equivalent tax on e-cigarettes.

The bill includes several proposals:

  • It lays out a framework for reconstructing the impending $1.2 billion loss of the managed care organization tax (MCO tax);
  • It boosts funding for the developmentally disabled and the state’s regional centers for that population;
  • It raises some Medi-Cal provider rates;
  • It increases spending to curb tobacco use: and
  • It pays for the state’s agreement with the courts to raise In-Home Supportive Services hours by 7%.

That’s a lot in one bill.

“Not only will it generate much-needed revenue for health care and developmental services,” Hernandez said in a written statement, “it also helps reduce smoking rates and deters teenagers from getting hooked on a deadly habit.”

“It’s the only bill out there that comprehensively solves all the issues raised by the governor and the special session,” said Tim Valderrama, chief of staff for Hernandez.

The MCO tax component is based on the governor’s latest proposal of a tiered-tax system. Since federal officials declared California couldn’t use its current MCO tax formula (taxing only those plans that participate in Medi-Cal and then matching that money with federal dollars and basically paying the plans back through provider fees), the state needed to come up with a broader-based formula that taxes all MCOs, even those that don’t participate in Medi-Cal and therefore don’t reap any benefit from the tax.

“The big difference is, this new proposal limits the net liability by half for the plans,” Valderrama said, down to $317 million from the originally proposed $669 million.

The new “Mega Bill,” by the numbers:

  • Raises $1.2 billion by taxing cigarettes $2 a pack, also adding a tax on any cigarettes stored by dealers and wholesalers and raising the tobacco products tax;
  • Raises $100 million by taxing electronic cigarettes or e-cigarettes by an amount equivalent to $2 a pack on traditional cigarettes;
  • Raises $1.3 billion by imposing the new MCO tax;
  • Increases funding to regional centers and raises provider rates for those working with the developmentally disabled;
  • Increases funding for tobacco use prevention and research, law enforcement, medical school education and payments for Medi-Cal funded services. Also replaces any loss of tobacco-tax funding due to a decline in revenue from imposing the $2-a-pack tax; and
  • Provides funding for the 7% restoration of In-Home Supportive Services hours.

“A budget is a reflection of a society’s values,” Hernandez said. “The revenue generated by enacting this bill will help provide care for the most underserved and neediest communities in California. These are our grandparents, parents, brothers, sisters and friends. As a society we cannot continue to ignore their cries for help.”

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