Capitol Alert

Industry, governor fail to reach deal on new health tax

Approximately 100 people, many of them disabled, march along L Street to the Capitol advocating for disabled people during the Disability Capitol Action Day in Sacramento in May 2013.
Approximately 100 people, many of them disabled, march along L Street to the Capitol advocating for disabled people during the Disability Capitol Action Day in Sacramento in May 2013.

Talks on renewing and expanding an existing tax that helps pay for healthcare for the poor have ground to a halt, following an intense push by the Brown administration to craft a deal before lawmakers finish their regular session Friday.

Other special session measures to raise taxes on tobacco to pay for various health programs also failed to advance.

A revised tax on managed-care organizations was a top goal of Gov. Jerry Brown when he called a healthcare special session in June. The state otherwise faces a $1.1 billion hole in the next budget.

Unlike the regular session, the healthcare special session can continue and negotiations could extend into the fall, although there is no guarantee of that. That puts the issue in the same arena as the special session on transportation, another Brown priority, which also failed to yield a tax deal before lawmakers finished their regular session work.

“We did everything we could to make this work,” Health Secretary Diana Dooley said in an e-mail to health plans and other stakeholders Friday afternoon. “It is deeply disappointing that the health plans could not come together to support this proposal, and the Republican legislators have refused to consider any tax adjustments at all.

“We put a good plan on the table,” Dooley added. “With the special session still open, it is now up to the plans which refused to endorse this proposal, and the Republicans who refused to consider it, to stop drawing lines and start putting solutions on the table.”

A related effort to raise the tobacco tax by $2 per pack, which would have generated an estimated $1.2 billion annually for developmental disability programs, increases in Medi-Cal physician reimbursement rates and anti-tobacco programs is also done for now.

“The votes aren’t there,” said State Sen. Ed Hernandez, D-Azusa, who leads the health special session committee in the Senate. “They’re just not there.”

Doctors and labor unions are currently weighing a campaign to take the tobacco tax hike to the ballot next year, but Hernandez said lawmakers may still try to pass the measure in the special session.

Any tax measure needs a two-thirds vote, requiring the votes of at least some Republicans. The GOP leaders in both houses, though, have ruled out supporting tax hikes, saying the money for the programs should have been part of the regular state budget approved in June.

“Democrats are trying to manufacture a false emergency,” Assembly Republican spokeswoman Amanda Fulkerson said in a statement responding to Dooley’s remarks. “Rushing to slap Californians with higher health insurance premiums is not a realistic plan. If this is the best option then it will still be the best option when we return in January.”

California’s existing managed-care organization tax helps secure federal matching money to help pay for Medi-Cal. It expires July 1, 2016, and the federal government has said any new tax must cover all health plans, not just those with Medi-Cal customers. Those costs almost certainly would be passed on to commercial plan customers.

Under Brown’s January proposal, an expanded tax would raise $1.3 billion, with about $200 million of that going to restore a 7 percent cut to home-care workers. Another health plan tax proposals would have raised close to $2 billion.

Health plans, though, balked at Brown’s approach and opposed some of the other legislation. Tax increases would hit some plans disproportionately and could prompt some plans to leave the California market, officials warned.

Administration and industry officials tried to craft a compromise. To offset higher managed-care tax payments, the administration offered health plans a break on other taxes, according to a proposal outlined to a Senate committee Thursday by Jennifer Kent, the director of the Department of Health Care Services. That would significantly reduce the overall tax hit to plans, she said.

Some health plans, though, are nonprofits and would face significantly higher managed-care tax payments without the benefit of offsetting tax breaks.

“Throughout the year, health plans have worked constructively with all parties so we do not lose critical funding for Medi-Cal while preventing significant imbalance in the marketplace and minimizing the impact on consumers,” Charles Bacchi, the CEO of the California Association of Health Plans, said in a statement. “The existing tax does not expire until next year and the special session gives the Legislature, administration, plans and other stakeholders more time to hammer out a solution.”

Jim Miller: 916-326-5521, @jimmiller2 Alexei Kosoff of The Bee Capitol Bureau contributed to this report