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Special Session on Health Spending Opens

State lawmakers last week convened the first hearing of a governor-ordered legislative special session on health care funding.

Senate leaders met Friday for the initial “extraordinary session” on how to come up with new funding for Medi-Cal and the developmentally disabled services program. The committee also expects to examine possible sources of funding for Medi-Cal provider rate increases.

The central issue is the looming loss of the managed care organization tax, which cannot function in its current state, according to federal guidance.

Loss of the MCO tax would mean a shortfall of $1.1 billion for the state’s Medi-Cal program. In addition, the state is bound to continue this year’s restoration of a 7% rise in In-Home Supportive Services hours.

“Together you’re looking at a $1.3 billion pressure on the state’s finances,” said Michael Wilkening, the undersecretary of the California Health and Human Services agency. “The federal government will not approve the MCO tax as it is, and that has been a stable source of funding. We need something to replace them.”

The governor has proposed a different kind of MCO tax, one that would cost non-Medi-Cal insurers about $658 million a year, according to Mari Cantwell, chief deputy director at the Department of Health Care Services, which oversees Medi-Cal.

“We couldn’t find an option that had a lower overall impact to the plans,” Cantwell said. “The $658 million [tax] generates $1.35 billion to the state. But there was no other structure we could find.”

The state had been taxing Medi-Cal insurers and matching the MCO tax with federal funds. Federal guidance now wants states to issue that kind of tax in a more broad-based and uniform way.

Committee chair state Sen. Ed Hernandez (D-West Covina) said the special session will be a chance to take on long-simmering issues, including the Medi-Cal provider rate.

“We have been under-funded in Medi-Cal and [the Department of Developmental Services] for way too long,” Hernandez said. “These are issues I’ve been talking about [in the Legislature] for almost eight years.”

A men’s barber makes more on a quick haircut than a primary care physician makes for diagnosing and treating a Medi-Cal patient in the doctor’s office, Hernandez said.

“The amount a primary care physician makes in our state for a regular office visit in the Medi-Cal program is $16,” he said. Then he said it slower. “Let me say that again: Sixteen dollars.”

New York state, for instance, has a rate twice as high as that, Hernandez said.

“Given the dramatic expansion of enrollment, it makes no sense to continue Medi-Cal provider rate reductions enacted during California’s economic downturn,” Hernandez said.

When you start talking about provider rate increases in a program the size of Medi-Cal, the spending numbers can rise quickly, said Jennifer Kent, director of DHCS. And right now, she said, the biggest challenge is losing the MCO tax.

Of the roughly $95 billion for Medi-Cal, only $18 billion comes from the general fund, she said. Take out $1.1 billion and Medi-Cal would be in trouble, she said.

“When you look at meaningful impacts, that’s a really significant hit,” Kent said.

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