Lawmakers Jumpstart Efforts to Plug Billion-Dollar Hole in Medi-Cal’s Budget

Efforts are underway to jump-start negotiations to come up with an equitable tax on health plans that will fill a $1.1 billion gap in the Medi-Cal budget.
Legislative leaders announced conference committee appointments Wednesday, after lawmakers failed to come up with a fix before the regular legislative session ended Sept. 11.

That wasn’t a formal deadline on the issue because Gov. Jerry Brown called a special session on health care financing that doesn’t follow normal rules. The current method for generating the money doesn’t expire until June 30, 2016.
The devil is in the details — as lobbyists and lawmakers found out over the last year. Negotiations to fill the gap have gone on formally and informally for a long time.

The problem is that California currently taxes only managed-care plans to get more federal matching funds for the Medi-Cal program. The tax is improper because it has to include commercial plans as well, federal officials say. That pulls in some big California plans that don’t do a lot of Medi-Cal business — think Kaiser Permanente and Blue Shield of California.

Gov. Jerry Brown’s first proposal was a tiered tax that would have returned as much money as possible to Medi-Cal managed-care plans. That generated big winners and losers. Sacramento-based Western Health Advantage, a regional, commercial plan, would have had to pay a tax of $15 per member per month, while some large plans were poised to pay $2 to $3 per member per month, said Rick Heron, chief marketing officer at Western Health.
“It was quickly understood this would not make sense,” Heron said. “We support taxing health plans to fund Medi-Cal because it is such an important program, with a caveat that is needs to be fair and equitable.”

A flat tax proposal emerged as a more equitable approach, but there’s dispute about how much money should be raised.
The latest version would levy a flat tax of $7.88 per member per month on all health plans. That amount would fill the $1.1 billion gap — and allow the state to restore cuts to Medi-Cal provider rates, reinstate In-Home Supportive Services hours and increase developmental services funding.
“We’d support that type of proposal as fair and equitable, with the understanding that some of that will be passed on to members,” Heron said. “The goal of the industry is to get everyone to agree — and unanimously support — whatever tax it is.”

Affordability of health coverage is a big concern. Providers and health plans already shift costs from low-paying government programs to commercial insurance. At current rates, Medi-Cal provider rates are the lowest in the nation. If health plans simply pass on the tax burden in the form of higher premiums, employers will face a higher tab.

The task at hand is to come up with a tax that fills the $1.1 billion gap, is fair to all health plans and does not unduly affect commercial insurance.
“We have been working in good faith with the Administration and members of the Legislature to find a solution to fully and sustainably fund Medi-Cal,” said Amy Thoma, Kaiser’s director of public advocacy. “We believe any solution must be equitable and not impact our efforts to make health care more affordable for our 7.8 million members in California.”

Kaiser is set up to care for its own members, but does get Medi-Cal patients through its emergency rooms and participates in some managed-care programs. The plan has a total of 602,000 Medi-Cal members, roughly 8 percent of total statewide enrollment.
Blue Shield currently serves more than 3.4 million private-sector members but has signed an agreement to buy Care1st Health Plan, which has more than 524,000 members, most of them in the Medi-Cal program. The deal is pending approval by state regulators.
“Blue Shield does not have concerns about paying the tax,” spokesman Steve Shivinsky said. “We are willing to do so and want to find a reasonable and equitable solution.”

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