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California lawmakers unveil bill to tax MCOs and plug $2 billion hole in budget



February 11, 2016
Area(s) of Interest: Advocacy 

California lawmakers on Monday unveiled two identical bills to replace the soon-to-expire tax on managed care organizations (MCO). The bills, ABx2 20 (Bonta) and SBx2 15 (Hernandez), are the product of 14 months of negations with MCOs. These bills are supported by the California Association of Health Plans, with most member plans either supportive or neutral.

The current MCO tax will expire this summer if legislators cannot agree on a replacement. Since 2005, the state has taxed MCOs and used the money to cover the costs of the Medi-Cal program. However, federal officials in 2014 informed California that its MCO tax structure was not compliant with federal requirements. Since then, the California Department of Health Care Services and other administration officials have been negotiating with the health plans to construct a tax scheme that meets federal standards. The loss of the MCO tax and the federal matching funds would mean a devastating loss of over $2 billion for the Medi-Cal program.

These bills create a new MCO tax scheme by establishing various taxing tiers and per-enrollee amounts in order to account for the various health plan sizes licensed under the Department of Managed Health Care. They would exempt health plan income from the state’s gross premiums tax in an effort to offset the impact this tax will have on the non-Medi-Cal, commercial lives. The legislation would impose a new MCO tax until June 30, 2020, at which point the tax would sunset.

Bipartisan support in the Assembly and Senate is needed to get the required supermajority to pass a tax increase.

Gov. Jerry Brown called a special session of the state legislature in fall 2015 to deal with health care financing, but lawmakers failed to find a solution for the budget hole. His administration has worked for months to broker a compromise with insurance plans.

The bill could begin moving through legislative committees as soon as this week.

Contact: Eduardo Martinez, (800) 786-4262 or emartinez@cmadocs.org.

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