Capitol Alert

$2 cigarette tax hike: Doctors and hospitals fight tobacco industry

Yes on 56 campaign argues for higher cigarette tax

Proponents of a ballot measure to increase tobacco taxes by $2 are airing a TV ad explaining why the American Cancer Society, Cancer Action Network, American Lung Association and American Academy of Pediatrics support Proposition 56.
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Proponents of a ballot measure to increase tobacco taxes by $2 are airing a TV ad explaining why the American Cancer Society, Cancer Action Network, American Lung Association and American Academy of Pediatrics support Proposition 56.

Proponents of a ballot measure to add a $2 tax on cigarettes boast that their coalition is broader, more diverse and better funded than past campaigns to raise tobacco taxes.

Look at where the money would end up, and it’s not hard to understand why: Up to $1 billion of the new tax revenue goes to Medi-Cal.

The lung, heart and cancer associations, known as “white hat” interests at the Capitol, have battled Philip Morris and R.J. Reynolds at the polls for decades. This time around doctors, hospitals and labor unions have put in most of the $19.5 million collected so far for the pro-tax campaign, hoping the measure caps a multiyear effort to increase reimbursement rates for Medi-Cal, the state’s health insurance system for the poor.

It’s the reason ads against Proposition 56, funded by a tobacco industry campaign that has raised $55.9 million so far, call it a “special interest tax grab” that benefits their adversaries.

“Most of the $1.4 billion created in new tax revenue each year goes directly to health insurance companies or other wealthy special interests to enrich themselves,” a woman planting flowers on her patio says in one of the spots.

Said Beth Miller, a spokeswoman for the No on 56 campaign: “It’s a measure to fund Medi-Cal, but you would never know that from the Yes on 56 side.”

Many of the proponents do represent Medi-Cal providers. They have long pushed the state to reverse a 10 percent reimbursement cut authorized in 2011, arguing that increasing the rates is essential to provide coverage for California’s lowest-income patients.

It’s a measure to fund Medi-Cal, but you would never know that from the Yes on 56 side.

Beth Miller, spokeswoman for No on 56 campaign

Finding no success in the Legislature or sympathy from Gov. Jerry Brown, the California Hospital Association, California Medical Association, California Service Employees International Union and other health-oriented groups are turning to voters.

“It’s not for lack of trying,” said Dustin Corcoran, chief executive of the California Medical Association. “If there was a pathway to get to two-thirds through the legislative process, we would go through the legislative process.”

His organization supported past tobacco tax campaigns but didn’t contribute any money. It has given $1 million to the pro-tax campaign this year.

Doctors have long argued that low reimbursement rates are undermining the Medi-Cal system. While more Californians are seeking treatment, the state hasn’t done enough to increase funding to provide care, Corcoran said. Reimbursement rates are not up to par with the cost of practice, making it difficult for physicians to accept Medi-Cal patients, he said.

“It is a broken system,” Corcoran said. “Physicians want to be able to take care of patients. There’s not a lack of desire or a lack of willingness. It’s whether you can actually sustain a practice for all of your patients and provide that level of care that areas need and deserve.”

Medi-Cal is expected to balloon to 14.1 million patients in the current budget year, nearly double the number of Californians using the government-funded health care program four years ago, according to the state. Officials attribute the increase to the federal health care overhaul that expanded subsidized insurance. With a shortage of Medi-Cal doctors, advocates say patients in rural areas and other pockets of the state lack adequate access to care.

During budget talks, the Brown administration has pushed back against the need for rate increases. The administration pointed out that struggling providers can request reimbursement in full and questioned whether higher rates will result in better care.

14.1 millionthe number of Medi-Cal patients the state estimates for the current budget year

When asked to clarify the governor’s position on Medi-Cal reimbursement rates, his press office forwarded the request to the Department of Health Care Services.

“Over time we have found that small, across-the-board rate increases do little to expand access or encourage new providers to enroll in Medi-Cal,” said Jennifer Kent, director of DHCS. “In our experience, targeted rate increases aimed at specific provider types or for specific services are much more effective to attract new providers and expand access to care.”

Brown has not taken a stance on the initiative.

The measure does not distribute funds within Medi-Cal or set up a protocol to increase rates, leaving those decisions up to the Legislature, Gov. Brown and the influence of powerful lobby groups, if it passes.

Voters rejected a measure in 2006, known as Proposition 86, to raise the tobacco tax by $2.60 per pack of cigarettes, which would have directed more than $750 million to hospitals for emergency care. Proposition 29, a 2012 tax increase of $1 per pack of cigarettes, would have largely funded research into tobacco-related diseases and other chronic conditions.

The California Hospital Association is one of the few donors to the current campaign, other than the lung, heart and cancer associations, that contributed money to previous efforts. The group co-sponsored and gave $10.9 million to the failed tobacco tax increase in 2006, the measure that would have directed money to hospitals, and $10,000 to Proposition 29 in 2012. This year, the hospitals are the single largest donor to the pro-tax campaign, giving $10 million through their political action committee so far.

The association says it won’t be the primary beneficiary of the tax revenue this time and the bulk of the money will go to doctors and community clinics. Nonetheless, it supports the measure and argues it will “help ensure access to care for Medi-Cal patients.”

“When patients are able to see a doctor, they are less likely to seek care in hospital emergency rooms,” association spokeswoman Jan Emerson-Shea said. “Hospital ERs are the most expensive part of the health care system, and they are not the right place for patients to obtain primary care services. The new funds that will be generated by Prop. 56 will hopefully lead more doctors to accept Medi-Cal patients.”

A political action committee for the California Service Employees International Union has given about $4 million to the coalition pushing the tobacco tax, making it the second largest contributor, according to state filings.

A local SEIU union, United Healthcare Workers West, has been working to increase Medi-Cal reimbursements since 2014, after it struck a labor agreement with the hospitals. The local, which represents 85,000 hospital workers, teamed up with the hospitals on a $10 million advertising campaign to increase Medi-Cal rates last year. The California Medical Association also joined the campaign.

In a statement, SEIU California President Laphonza Butler said the union is supporting the measure because it is “an opportunity to halt the No. 1 cause of preventable death in California – smoking addiction.” Butler did not mention Medi-Cal. SEIU did not give money to Propositions 86 or 29, according to state filings.

I can’t think of a bigger special interest than tobacco.

Dustin Corcoran, chief executive of California Medical Association

Meanwhile, the California Dental Association and a committee sponsored by Blue Shield of California have given about $1 million apiece to the pro-tax coalition.

Care1st, an affiliate of Blue Shield, is a Medi-Cal managed care plan. Blue Shield gave $25,000 to Proposition 86 and didn’t contribute to Proposition 29. The dentists, some of whom serve Medi-Cal patients, didn’t give to either of the earlier campaigns.

A spokeswoman from the dental association echoed Corcoran’s statements, saying the measure is well-crafted to correct problems with the state health system. The association cited a 2014 state audit of the Denti-Cal program, which found an insufficient number of providers due to low reimbursement rates.

“The provider reimbursements are an issue. (Dentists) get pennies on the dollar,” said Alicia Malaby, a CDA spokeswoman. “They do want to provide care for Denti-Cal beneficiaries, but some of them can’t make it work because the reimbursement rates are so low.”

Planned Parenthood and its affiliates, which operate 115 health centers and see 800,000 patients a year in the state, have given $655,000 to the pro-tax campaign. About 90 percent of Planned Parenthood patients are on Medi-Cal, said Kathy Kneer, chief executive of Planned Parenthood in California.

The organization’s costs have skyrocketed about 300 percent in the last 30 years, greatly outpacing increases in Medi-Cal rates, Kneer said. Some Planned Parenthood offices have cut back on hours and patient visits and are considering closing their doors as leases expire, she said.

“We’ve done everything we can to manage costs, but at the end of the day if you’re committed to serving Medi-Cal patients, you’re on a starvation diet that is continuing to erode our ability to service patients,” Kneer said. “It’s becoming economically unsustainable.”

The measure also directs money to a handful of other state agencies and stakeholders to enforce the law, administer the tax, train more doctors, treat and prevent health and dental diseases, conduct audits, perform research, curb tobacco use and back-fill lost tobacco taxes to other funds.

Corcoran of CMA scoffed at the notion that the result is a “special-interest tax grab.”

“I can’t think of a bigger special interest than tobacco,” he said.

Gov. Jerry Brown has signed California's most significant new tobacco legislation in decades.

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Follow the money

California currently assesses an 87¢ tax on a pack of cigarettes. Proposition 56 would raise that to $2.87. How the current and proposed taxes are allocated:

Chart showing tobacco tax allocation 
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