California lawmakers are staring down a $1.1 billion hole in next year鈥檚 health budget after failing to come up with a way to replace the state鈥檚 鈥渕anaged care organization tax鈥� on health insurance plans that serve Medi-Cal managed care recipients.
It鈥檚 a hole big enough that state Gov. Jerry Brown recently used it as a reason to sent to him by the state legislature.听 And unless it鈥檚 filled, Brown, a Democrat, is expected to issue a preliminary state budget in January with sizeable cuts to health and human services programs.
So far, the governor鈥檚 efforts to fill the void haven鈥檛 paid off. Brown in June had called a special legislative session to find other revenues to replace the tax, which the federal government says doesn鈥檛 meet regulations. That session is ongoing, and an informational hearing on the managed care organization tax is scheduled for Dec. 1 in Los Angeles, but getting everyone back to the negotiation table is proving difficult.
At the same time, state officials face other pressures on their Medi-Cal program, which has a total budget of $91.6 billion. 听After much delay, health officials only recently with the federal government on how to fund reforms in Medi-Cal services.听 And federal officials approved less than half the $17 billion the state had originally sought.
Some observers say they don鈥檛 expect a deal on the managed care organization tax until the middle of next year, when federal officials have said the tax must end. While there may be closed-door discussions between insurers and state officials to find a solution, no one will talk publicly about them.
鈥淚n some ways, people are willing to walk away right now because they still have time,鈥� said Shannon McConville, research associate at the Public Policy Institute of California.
The prospect of more than billion in budget cuts, however, could provide motivation for a deal.
鈥淚t鈥檚 unfortunate we got to this place, but when the governor鈥檚 budget comes out, there will be tremendous pressure鈥� to fix the tax issue, said Maya Altman, CEO of Health Plan of San Mateo, which serves Medi-Cal managed care recipients.
She said budget cuts could make it difficult to raise already-low reimbursement rates for doctors, and almost certainly would reduce services for developmentally delayed children, the elderly and the disabled.
The problem is, the way California is taxing health care insurers and providers may be illegal under federal law. For years, the state has required managed care plans serving Medi-Cal recipients to pay a special health care tax. Because the federal government , beefing up the state鈥檚 Medi-Cal budget has allowed the state to draw down more money from Washington.
The state then in effect reimburses the insurers for those tax payments through a complicated scheme involving payment of insurers鈥� administrative costs and the services they provide to Medi-Cal patients.
But Congress in 2005 to try to end this practice, and last year the federal government still assessing these taxes that they have to tax all managed care plans, not just those serving Medicaid patients. The rationale: to lessen the financial burden on the federal Medicaid program and tax health insurance providers more equitably.
States with taxes that don鈥檛 meet federal guidelines must change or end them, or risk the loss of hundreds of millions of federal Medicaid dollars.
But managed care plans that don鈥檛 serve California鈥檚 Medicaid patients 鈥� and thus would not benefit from reimbursements under the program 鈥� are resisting new state taxes. Those added costs would be passed on to consumers, the insurers have said.
A proposal from state health officials and backed by some Democratic state legislators to replace the tax in California with a new tax on all managed care insurers, based on their number of enrollees, was roundly rejected by the state鈥檚 insurers and the state鈥檚 Republican legislators. In opposing the proposal, the California Association of Health Plans cited excessive costs for its members.
The opposition drew a from Diana Dooley, secretary of the California Health and Human Services Agency.
鈥淚t is now up to the plans which refused to endorse this proposal, and the Republicans who refused to consider it, to stop drawing lines and start putting solutions on the table,鈥� she wrote.
California isn鈥檛 the only state in this mess. Pennsylvania was for having a tax that didn鈥檛 comply with federal law. The Keystone state hasn鈥檛 been able to reach a deal with its insurers, either.
鈥淒iscussions are ongoing,鈥濃�� was the terse statement from Doug Furness, director of government affairs for the Insurance Federation of Pennsylvania. A spokeswoman for the Pennsylvania health agency overseeing Medicaid declined to comment.
Ohio officials were similarly tight-lipped about negotiations regarding the state鈥檚 tax, which, like California鈥檚, can鈥檛 pass muster with federal officials. Michigan, as well, is wrestling with a similar health tax that may not be legal.
But other states have been able to change their health provider taxes to comply with the law, said Cindy Mann, a former top official with the Centers for Medicare & Medicaid Services who wrote the agency鈥檚 warning states about the tax issue.
In California, Democratic lawmakers have proposed raising taxes on tobacco and cocktails in bars and restaurants to help pay for health services, but the proposals stalled in the legislature. Now, health advocates, lobbying groups and health worker unions including the American Lung Association, the California Medical Association and SEIU are on the November 2016 ballot, which could raise an estimated $1.5 billion in its first year.
In the meantime, the backroom discussions will continue among insurers, legislators and state health officials on how to replace the managed care organization tax鈥檚 revenues.
鈥淲hile it鈥檚 possible that this becomes a stalemate, it鈥檚 also possible that the health insurance industry acknowledges that a billion dollars in cuts is too much of an apocalypse to not grudgingly come to some kind of compromise,鈥� said Anthony Wright of Health Access, a statewide health advocacy group. 鈥淣obody wants to see what a billion dollars of cuts to our health care system looks like.鈥�
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