Capitol Alert

California Legislature approves bills on taxing health plans

In this photo taken Thursday, Feb. 18, 2016, Doctor Leonid Basovich, left, examines Medi-Cal patient Michael Epps, at the WellSpace Clinic in Sacramento.
In this photo taken Thursday, Feb. 18, 2016, Doctor Leonid Basovich, left, examines Medi-Cal patient Michael Epps, at the WellSpace Clinic in Sacramento. AP

California lawmakers approved a health plan tax package Monday designed to continue pulling in more than a billion dollars in matching federal money, while committing several hundred million dollars to services for the developmentally disabled, debt relief and other programs.

The votes cap a yearlong process triggered by the July 1 expiration of an existing levy and the federal government’s demand that any extension must cover all managed care organizations, not just those that serve Medi-Cal managed care patients.

The final deal includes tax offsets designed to minimize any hit to health plans that could be passed on to consumers. In addition, to achieve enough Republican support, the package includes several components Republican lawmakers wanted, such as providing more money to help people with autism and other developmental disabilities and forgiving a budget debt owed by skilled-nursing facilities.

“I have proudly served as a member of the Legislature for almost 10 years, and I can say without hesitation that this proposal is the best example of a win-win that I have ever seen,” state Sen. Ed Hernandez, D-Azusa, the author of the tax measure, said shortly before the tax measure passed 28-11, with one abstention. The tax bill cleared the Assembly a short while later.

The package’s other main component, which allocates the additional money for developmental services, passed both houses unanimously.

28-11 Senate vote for MCO tax bill, with one abstention

Republican critics of the tax measure said Gov. Jerry Brown and majority Democrats in the Legislature could increase funding for those programs without extending and expanding the tax on managed care organizations.

State Sen. Jeff Stone, R-Temecula, whose granddaughter has been diagnosed with autism, said he found “offensive” the package’s linking the continuation of the health plan tax to more money for services to help her and other developmentally disabled residents and their families.

“Is there anything written in this bill that would codify the fact there would be no increases to any citizens of California? No,” Stone said. “The bottom line is the consumer will get hurt with this bill.”

But Assembly GOP Leader Chad Mayes, R-Yucca Valley, who represents many of the same constituents as Stone, said he trusts that plans will not use the tax as an excuse to raise rates. He called the package “good public policy.”

“After we had negotiated what we had negotiated, what we looked at – we brought it back to the caucus. They said, ‘that’s a good deal,’” he said.

Assemblyman Tom Lackey, R-Palmdale, was one of many Republicans who voted for the package’s funding portion but opposed the tax extension. People with developmental disabilities, he said, are the “most needy and deserving part of our population.” Hernandez was among Democrats who criticized Republican vote-splitters as duplicitous.

61-16 Assembly vote for MCO tax bill, with one abstention

Monday’s votes came more than a year after Brown proposed a revamp of a tax on health plans that the state has had, in one version or another, since 2009.

The existing tax applies to managed care organizations that have Medi-Cal managed care patients. It helps the state pull in more than $1 billion in federal matching money that helps pay for Medi-Cal and other programs.

In June 2014, however, the federal government told the state that any renewed tax had to be broad-based and apply to all health plans.

Republican lawmakers and health plans opposed last year’s proposal, which would have cost the industry an estimated $700 million annually. Plans with few or no Medi-Cal patients would have been hit harder than others, and said they would have been likely to pass those costs on to consumers or leave the California market.

The current proposal rests on a tax swap. Health plans hit by the tax on managed care organizations would receive comparable offsets in their gross premium and corporation taxes. Those “tax reforms” would cost the state an estimated $370 million in the coming fiscal year, with the industry as a whole coming out an estimated $100 million ahead from the offsets. But how each plan would fare is unknown. Most of the companies’ tax information is proprietary and was not available to the Brown administration or other negotiators.

Overall, the state general fund would net an estimated $1.3 billion in 2016-17, an amount that would rise slightly during each of the three years covered by the bill.

The pact means an estimated $306.5 million in new general fund money for the state’s system of serving the nearly 300,000 Californians with developmental disabilities. It includes rate increases for the network of 21 nonprofit regional centers that contract with the state to arrange the services, as well as the hundreds of for-profit and nonprofit agencies that provide them.

The forgiveness of budget debt owed by hospital-based skilled-nursing facilities would cost about $123 million in 2016-17.

Nancy McFadden, a top aide to Brown, posted on Twitter, “He’s waiting pen in hand.” Once the governor signs the package, state officials must sell the health plan tax to the Obama administration, which will have the final say on whether the state’s approach is eligible for federal matching money.

A spokesman for the U.S. Centers for Medicare and Medicaid Services had no estimate Monday on how long the agency’s review would take.

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