State’s Largest Health Insurance Lobby Approves Tax Plan

Insurance industry lobbyists and state negotiators reached agreement Wednesday on a tax package to rescue more than $1 billion in federal Medi-Cal funding – money that the feds were threatening to take away.

After months of negotiations, the complicated deal to tax all managed care plans finally won the blessing of the state’s largest health insurance lobby, the California Association of Health Plans.

Because it qualifies as a tax hike, the deal requires a two-thirds vote of the state legislature. Though that is not assured, the industry’s support enhances its prospects.

The agreement includes $371 million in tax breaks for parts of the health insurance industry. Jennifer Kent, director of the California Department of Health Care Services, said those breaks won’t hurt the state’s total budget.

“We would use the [new] tax revenue to ensure the general fund is not negatively impacted,” she said.

Still, details of the deal are only now emerging, and it remains unclear just how positive the budget impact would be.

“It’s mind-bending and hard to explain,”  said Charles Bacchi, the health plan association’s president and CEO. “We can’t say it enough; it’s highly complicated.”

He added that, “In some ways [how it works] is kind of irrelevant. If the net is the net and the impact is the impact, what really matters is, ‘Does this fill the hole in the Medi-Cal budget?’”

And, he said, “it does.”

The federal government had rejected an existing state tax scheme that puts a 3.9 percent levy on premiums paid for the care of Medi-Cal patients enrolled in managed care plans. The tax, set to expire July 1, pumps $1.1 billion a year into Medi-Cal, an amount matched by the federal government. Much of that money is rerouted back to the health care plans as Medi-Cal payments.

As federal officials required, the new plan taxes all managed care plans, Medi-Cal or not, based on how many people each company’s plans cover.

To strike the deal, the state agreed to cut another tax on health care premiums to zero for three years, for an industry savings of $371 million annually.

Related Topics

Capitol Desk Medi-Cal