Policy & Regulation News

Calif. Managed Care Organization Tax Proposal Axed

By Sara Heath

The managed care organization (MCO) tax in California has been causing quite a debate over the past year. After the Centers for Medicare & Medicaid Services (CMS) issued a letter to the state informing them that their current MCO tax model did not meet federal medical tax guidelines, California has been in a government battle to reform the MCO tax model in a way that could resolve the issue and maintain state finances.

The letter in question was issued in July of 2014, and sought to clarify what does and does not apply as a healthcare-related tax. Through a series of policy changes, it came to be that California’s MCO tax was not consistent with federal guidelines because it only directly affected Medicaid users. CMS concluded the letter saying that California, and states with this same tax problem, should restructure their tax system before their tax laws expire at the end of the next legislative season.

Completely foregoing the healthcare-related tax would lose California’s healthcare system approximately $1.1 billion in federal matching funds, severely crippling the state’s healthcare economy. As a result, the California state government has produced various plans to restructure the healthcare-related tax system, ultimately proposing a unit tax based on enrollment size for all MCOs, among other proposal details.

However, this proposal was not passed, and no other tax adjustment proposals have been made by other parties. On September 11, Diana S. Dooley, Secretary of California Health and Human Services, released a statement expressing her disappointment at the situation.

To begin, Secretary Dooley explained the efforts made on the part of California’s Health and Human Services as well as the governor.

“We have spent countless hours with the health plans, Legislators and those who will be most hurt if we must make up for a $1.1 billion loss. In the past few weeks alone, we agreed to eliminate other taxes paid by the health plans and made additional adjustments that would result in a very small cost to only a few plans. We did everything we could to make this work,” she wrote.

Secretary Dooley continued by explaining that it is allegedly Republican legislators and health plans who are blocking the tax reform her department states is necessary to maintain government healthcare. She also expressed disappointment in health plans for not cooperating with her department in developing and adjusting a functioning tax plan.

“It is deeply disappointing that the health plans could not come together to support this proposal and the Republican legislators have refused to consider any tax adjustments at all,” she wrote.

According to Secretary Dooley, these tax adjustments are critical in maintaining state-provided healthcare. Without tax adjustments and tax income, she wrote, the progress in state-provided healthcare that California has reportedly made within recent years will all be lost.

“Without additional revenue, there will be no alternative to reductions in our health care spending, jeopardizing the significant gains we have made through our implementation of the Affordable Care Act,” she wrote.

From here on out, Secretary Dooley concludes, it is up to health plans and other legislators to provide solutions to support a revised tax plan and government-funded healthcare.

“With the Special Session still open, it 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,” Secretary Dooley wrote.