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Flat Managed Care Tax Proposed

Katie Orr, Capital Public Radio

Assemblymember Mark Levine announces his proposal for a new Managed Care Organizations tax on Monday, August 17, 2015.

Katie Orr, Capital Public Radio

California is under orders to change the way it funds Medi-Cal. Lawmakers are considering the issue in a special Legislative session and a new proposal was announced Monday.

Under the current Managed Care Organizations tax, only health insurance plans that provide Medi-Cal coverage pay are taxed. They are then reimbursed by the state and federal governments. But federal officials say all health plans must be taxed. The state has until mid-2016 to change its taxing structure.

Democratic Assemblyman Mark Levine has introduced a bill that would assess a flat tax on all health plans. Each month each plan would be charged $7.88 per enrollee. Levine admits insurers may pass on the costs to consumers.

"If they do their work in an efficient manner, they may be able to absorb those costs," he says. "If not then perhaps they may be passing those costs on."

Levine’s proposal would use some of the new tax revenue to restore some social services programs. It would fund a 7 percent restoration of hours for In-Home Supportive Service workers and provide a 10 percent funding increase to Developmental Services.

"This is an opportunity to figure out what are so many indirect costs that we have in society to we are, in one form or another, paying for ultimately. And so where is there a nexus and where is there an opportunity," Levine says. 

But Levine’s proposal faces several challenges. Republican Assemblyman Travis Allen says the Legislature has a year to fix the tax and shouldn’t rush into anything. And he says consumers would end up footing the bill under Levine’s proposal.

"I think if anyone in Sacramento is thinking that health insurers are going to absorb this cost directly to their bottom line without passing additional costs on to California ratepayers, they’re living in a fantasy land," he says.

And the organization representing health insurers says the tax revenue should be targeted at supporting Medi-Cal. Charles Bacchi is the President and CEO of the California Association of Health Plans.

"We believe that the funding for the MCO tax should go back to bolster the Medi-Cal program," he says. 

Governor Jerry Brown has proposed a tiered tax structure.

If California doesn’t take action by next year the state could lose over $1billion in federal matching funds.