Capitol Alert

Fact Check: When is a tax hike really a tax hike?

Mike Morrell, R-Rancho Cucamonga, is the top Republican on the Senate’s health session committee.
Mike Morrell, R-Rancho Cucamonga, is the top Republican on the Senate’s health session committee. Sacramento Bee file

With legislative votes possible as early as this week on extending and expanding a tax on health care plans, some Republican lawmakers and others have stepped up their criticism, calling the proposal a tax hike.

The label carries weight because the measure requires votes from Democrats and at least some Republicans to pass.

The statement: “The federal government made a promise to the American people that the President’s health care law would drive down the costs of medical care for all citizens. Now they want to force Californians to pay even more to make their plan work,” read a Feb. 3 news release from state Sen. Mike Morrell, R-Rancho Cucamonga, the top Republican on the Senate’s health special session committee.

Analysis: Republicans are right that the tax, as it does now, helps pay for Medi-Cal. The program was expanded in California under the federal health care law, adding more than 3 million people to the rolls.

But the proposed tax shouldn’t cost Californians any more money. While it would apply to more health plans than the current one, thus raising their taxes, those health plans save money elsewhere in the proposal to make it a wash.

The roots of California’s current tax on managed-care organizations date go back to 2009, when the state had major budget problems.

The legislation that created it, Assembly Bill 1422, and follow-up measures that kept it going passed with strong bipartisan support as well as industry backing. The money helped maintain the former Healthy Families Program, which offered health insurance for thousands of middle-income children.

In mid-2013, though, Democrats held legislative supermajorities, the Healthy Families Program was on its way out, and all GOP lawmakers opposed a bill creating a 3.9 percent tax on about two-dozen health plans that had Medi-Cal patients, with the money and a federal match helping to pay for Medi-Cal.

Now that tax expires July 1, and the federal government says any new tax must cover 42 health plans, including those with few or no Medi-Cal patients. Plans have warned they would have to pass on several hundred million dollars in higher costs to consumers.

Last week, though, health plans signed on to a three-year tax pact hashed out with the Brown administration. Like earlier proposals, it would raise more than $1.1 billion to pull down an equivalent federal match. Key to the deal, though, is that it also would make health plans eligible for offsetting reductions in two other taxes collected by the state: their gross premium and corporate taxes.

Industrywide, health plans would come out about $80 million ahead from the tax swap, according to administration and industry officials.

Health plans therefore wouldn’t have significant costs to pass on to consumers and “force Californians to pay even more” for Medi-Cal – at least in the three years covered by the bill.