Republicans Balk at Revised MCO Tax

Replacing the state’s current tax on managed care organizations is going to be a challenging proposition, according to experts and state officials at this week’s special session hearing of the Senate Public Health and Developmental Services Committee.

Under the current MCO tax, only managed care organizations participating in Medi-Cal are taxed. The state matches the tax money with federal dollars and the MCOs are reimbursed through Medi-Cal services they provide. The arrangement generates about $1.1 billion a year and produces “no harm or loss,” according to Jennifer Kent, director of the Department of Health Care Services, which oversees Medi-Cal.

Speaking at Wednesday’s special session hearing, Kent said the situation changed when federal regulators raised concerns about the way the tax is levied.

“The feds … felt that was something that was impermissible,” Kent said. CMS officials wanted a broader-based tax — if the state was going to tax managed care organizations, it needed to tax them all.  

California’s current MCO tax remains in effect until July 2016.

“We have until next year to come up with a new broad-based tax that meets all the federal standards,” Kent said. “When we say broad-based … that is really where we have run into a little bit of a challenge. Taxing a plan across all lines of business has ramifications for both the individual market and the large-group market, [with repercussions] for plans in terms of their competitive advantage.”

In one proposed scenario, health plans that don’t participate in Medi-Cal still would be taxed on their individual and employer-based plans but wouldn’t recoup any of those taxes the way Medi-Cal providers do. How a new MCO tax is structured could hurt or help health plans. DHCS and the Brown administration have been working with the plans to come up with a fair distribution of tax responsibility, Kent said.

“We have been engaging in ongoing conversations with the plans, and I’d have to say they’ve been good partners,” Kent said.

“We have modeled revenue, we have modeled premiums, we’ve modeled enrollment numbers, and I think there’s a real willingness to work something out,” Kent said. “The federal challenges have been difficult.”

The state Republican caucus this week came out with a statement that laid out the importance of first addressing Medi-Cal provider rates and funds for the developmentally disabled — two issues that were tabled in budget negotiations.

Above all, though, said state Sen. Mike Morrell (R-Rancho Cucamonga), vice chair of Wednesday’s hearing, any funding of health care proposals needs to come without new taxes.

“We share the goal of protecting the most vulnerable citizens of our state without imposing any new taxes, fees or costs,” Morrell said.

 “Today we sit here discussing a new health care tax on almost every health policy in the state,” Morrell said. “We feel there does not need to be a rush to judgment or a rush to a solution.”

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