Capitol Alert

Feds approve California’s health plan tax swap

Senator Ed Hernandez, D-West Covina during session in 2013. Hernandez was the author of legislation to expand California’s existing tax on health plans that expires July 1.
Senator Ed Hernandez, D-West Covina during session in 2013. Hernandez was the author of legislation to expand California’s existing tax on health plans that expires July 1. hamezcua@sacbee.com

The Obama administration has signed off on California’s expansion of a tax on health plans that contributes hundreds of millions of dollars to Medi-Cal and other programs, with plans receiving offsetting breaks on other state taxes.

Tuesday’s announcement, after about two months of review by the federal government, comes a few days after Gov. Jerry Brown released a revised budget that assumed revenue from the health tax passed by lawmakers Feb. 29. The tax on managed-care organizations will bring in an estimated $1.1 billion for Medi-Cal, the state’s health care program for the poor, as well as allocating more money to people with developmental disabilities and other programs.

California has had some version of a tax on health plans for several years. But in 2014, federal officials said the state had to expand the tax to cover all health plans, not just those with Medi-Cal patients, or else miss out on about $1 billion in federal matching money.

Gov. Jerry Brown’s initial tax proposal in January 2015 made little headway. To win necessary support from Republicans and health plans, the legislation reduced other state taxes on health plans. Influential groups, such as the Howard Jarvis Taxpayers Association, took no position on the bill, saying the tax offsets meant health plans would have no reason to pass on costs from the new tax to millions of consumers.

“Today's approval provides stability to the program and guarantees that the quality health care our plans provide to these important populations will continue,” Brianna Lierman, CEO of Local Health Plans of California, said in a statement.

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