Capitol Alert

Data Tracker: Crafting a new health plan tax not an easy exercise

Licensed vocational nurse Geneva Hill, readies a flu shot for Zhuo Fen Huang of Sacramento at the Capitol in 2013. Anthem Blue Cross, one of the largest managed-care organizations in California, arranged for the shots.
Licensed vocational nurse Geneva Hill, readies a flu shot for Zhuo Fen Huang of Sacramento at the Capitol in 2013. Anthem Blue Cross, one of the largest managed-care organizations in California, arranged for the shots. rbyer@sacbee.com

The main goal of the Legislature’s special session on health care involves crafting a replacement for the current tax on managed-care organizations to help pay for health care for the poor.

How to do that, exactly, is causing plenty of headaches at the Capitol.

Since January, experts in state government and the health care industry have crunched the numbers to try to create a new tax. They want to pull in the same amount of matching federal money for Medi-Cal. They want to minimize the cost to millions of people who buy commercial health insurance. They also don’t want to put any of California's roughly three-dozen managed-care plans at a competitive disadvantage that could cause them to leave the market.

$0.75 to $25.25 Range of monthly taxes per health plan enrollee under Brown administration’s tiered tax approach

$5.66 Flat tax that would generate same amount

$7.88 Flat tax proposal that would also increase funding for developmental disability services and physician provider rates

The two tax approaches getting the most attention so far are a flat tax and a tiered tax crafted by the Brown administration. Each option would affect health plans much differently, depending on their size and Medi-Cal caseload.

Take Long Beach-based Molina Healthcare of California, the 11th largest in the state. Under a tiered tax approach, Molina would pay a proposed per-person monthly tax of $3.50 for the first tier of enrollment, $25.25 for the second tier, and so on.

That translates into an estimated annual gross tax of about $30 million. Many of Molina’s customers have Medi-Cal managed care and, as a result, the health plan would largely break even after Medi-Cal payments from the state.

It’s a different story for health plans like Aetna. It has almost as many customers as Molina, but has no members in Medi-Cal. Under the tiered approach, it would face a roughly $63 million tax hit.

Critics say that would put Aetna and companies in the same boat at a distinct disadvantage in competing for commercial health plan customers.

Aetna and some other plans’ tax liability would be much less under a monthly flat tax of $5.66 per person. But a flat tax would roughly triple the hit to health care giants such as Kaiser Foundation Health Plans.

That could have consequences for the state’s bottom line, since the largest health plans provide most of the coverage for state workers and retirees. Moreover, a flat tax wouldn’t pull in as much federal matching money for Medi-Cal.

Meanwhile, the clock is ticking. The Obama administration says the state’s existing tax on managed-care organizations has to be changed by mid-2016. The state otherwise will have to fill a $1.36 billion budget hole.

View the chart below to see how the proposals could affect the state's leading health plans. Or click here if using The Bee's mobile app.

The Sacramento Bee’s Data Tracker is a weekly feature that offers a deeper look at the numbers behind today’s news. Jim Miller: 916-326-5521, @jimmiller2

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