Negotiations to tax health plans falter on the Legislature’s final day

Reporting from Sacramento —  An effort to craft a new tax on health plans to stave off a looming plunge in federal funding for Medi-Cal has stalled, the Brown administration said Friday.

The health plans tax was at the top of the agenda for a special session on healthcare that was convened by Gov. Jerry Brown. California currently imposes a tax on plans that accept Medi-Cal patients, and the revenue goes into the state’s general fund to help pay for Medi-Cal and other services.

But the Obama administration has said California’s tax needs to be changed, or the state could lose federal funding for the public healthcare program. The current tax will expire in 2016.

“We have explored every conceivable option over the past 14 months to avoid losing $1.1 billion in federal matching funds,” said Health Secretary Diana Dooley in a statement.

“We did everything we could to make this work,” she continued. “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.”

Any tax proposal requires two-thirds approval, meaning Republican votes would be crucial to any proposal.

To comply with the new federal standards, any managed care organization tax would have to be levied on all health plans, even those with no Medi-Cal enrollees. Insurers say those costs probably would be passed onto consumers.

In a legislative hearing Thursday, Jennifer Kent, director of the Department of Health Care Services, detailed the latest administration proposal, which would have tax plans at different rates, based on how many people are enrolled in that plan. It also would have offered tax cuts to plans to offset some of the costs.

The tax on health plans was one of a number of levies being considered during the healthcare special session. Lawmakers also introduced a $2-per-pack increase in the tax on tobacco products. Another proposal by Assemblywoman Susan Bonilla (D-Concord) would impose a five-cent tax on cocktails at bars and restaurants in order to fund services for the developmentally disabled.

Unlike the regular legislative session, which adjourns at the end of Friday, the special session will remain open, leaving open the possibility lawmakers could return before the new legislative year begins in January to take action.

“Throughout the year, health plans have worked constructively with all parties so we do not lose critical funding for Medi-Cal while preventing significant imbalance in the health care marketplace and minimizing the impact on premiums. It has been a difficult task,” Charles Bacchi, president of the California Assn. of Health Plans, said in a statement.

“The current [managed care organization] tax does not expire until next year and special session gives the Legislature, Administration, plans and other stakeholders more time to hammer out a solution,” he said.

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