Brown Administration Continues Efforts To Replace MCO Tax

Officials with Gov. Jerry Brown’s (D) administration say that efforts to rework the expiring managed care organization tax are ongoing, Capital Public Radio’s “KXJZ News” reports (Orr, “KXJZ News,” Capital Public Radio, 11/19).


The current MCO tax expires in June 2016. In July, federal officials said they would not reauthorize the formula California uses.

With the current tax, only MCOs participating in Medi-Cal — the state’s Medicaid program — are taxed. California gets $1.1 billion in federal matching dollars on that money and then the MCOs are reimbursed through the Medi-Cal services they provide. Federal officials said if California wants to continue taxing MCOs, the state must tax all of them.

The California Legislature adjourned for the year without passing a bill to restructure the tax, leaving a $1.1 billion hole in the Medi-Cal budget — a deficit that was the central reason the governor in June convened the special session on health care.

Last month, Brown vetoed several bills, citing the state Legislature’s failure to rework the expiring managed care organization tax and the resulting budget deficit. In a veto message, Brown said, “Without the extension of the managed care organization tax that I called for in special session, next year’s budget faces the prospect of over $1 billion in cuts” (California Healthline, 10/13).

Meanwhile, Brown’s administration has proposed replacing the MCO tax with a tiered system of taxation.

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In a panel discussion on Thursday, Nancy McFadden, a top policy aide to Brown, said the state general fund will be unable to pay for Medi-Cal without the tax. “There are a lot of costs coming down the pike that are not factored in,” she said, adding, “That’s going to put increased costs into the general fund.”

However, she acknowledged that gaining the two-thirds majority vote in the state Legislature to approve the tax will be challenging.

Meanwhile, McFadden said, “We had a number of the health plans that were supportive [of the tiered tax structure] and thought it was the right thing to do when you look at the overall healthcare system. … We had a few that did not believe that” (“KXJZ News,” Capital Public Radio, 11/19).

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