Vote on MCO Tax Looming in the California Legislature

February 23, 2016

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Source: State of Reform

The California state legislature could vote this week on a proposed tax on health insurance plans that would fund the Medicaid (called Medi-Cal) program to the tune of $1.27 billion annually.

The managed care organization (MCO) tax would replace an existing one that doesn’t meet standards set by the Obama Administration and will expire on July 1. Some $1.1 billion in federal funding is in jeopardy if a new tax deal is not reached.

The new tax would bring in an additional $270 million a year and be a boost to Medi-Cal providers and beneficiaries in the state. About one in three Californians are enrolled in Medi-Cal.

California Gov. Jerry Brown issued the tax proposal last month and lawmakers have held hearings this week on the plan. The bill requires a two-thirds majority in the Legislature to pass.

The bill has the support of the California Association of Health Plans (CAPH), representing 48 health plans in the state.

“While each individual health plan is impacted differently, CAHP supports these bills as they fill a hole in the Medi-Cal budget, protecting our health care safety net,“ said Charles Bacchi, president and CEO of CAPH, in a statement. “The bills also offer needed tax relief for employers and families purchasing health coverage.”

About $250 million raised through the proposed tax would fund in-home supportive services, whose budget was slashed during the recession.

Overall, the tax reforms would reduce the health plan industry’s tax liability by $106 million. All health plans in the state would be taxed, regardless of whether they are part of the Medi-Cal program. The tax would be assessed on a per-enrollee basis. The tax would sunset in three years.

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