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The high-stakes fight over Medi-Cal

A physician on the night shift examining a CT scan. (Photo: Beerkoff, via Shutterstock)

The issue involves $1.1 billion and affects roughly one in three Californians.  There are sharp differences in positions.  Some special interests fear being hurt financially, while others might stand to gain.  No wonder lobbyists with determined looks are cruising Capitol corridors.

It’s all about coming up with a plan to hang onto the $1.1 billion in matching funds the feds ship to California each year to help finance MediCal, the immense program that provides health care to about 12.5 million of California’s poorest patients.  MediCal is larger than ever now because of the Affordable Care Act, which added more than four million Californians to the millions already receiving MediCal coverage.

It is not a remote war being waged in a foreign field.

Right now, 27 Managed Care Organizations, (MCOs) that accept MediCal patients receive MediCal money and pay 3.97 percent of their earnings to help finance the program.  Organizations that don’t accept MediCal patients — there are about a dozen of them in California — pay nothing.

That must change, say the feds.  After the current MCO tax plan expires on June 30, 2016, the Obama Administration wants a broader tax base in place if California is to keep receiving that $1.1 billion. Broadening the tax base to include plans that don’t accept MediCal enrollees has not been received graciously by those heretofore untaxed plans. Conventional wisdom is that they would pass on any new tax costs to their enrollees in the form of higher premiums.

While California lawmakers are occasionally guilty of spending time debating the merits of which creature should be the official state amphibian (it’s the California red-legged frog), MediCal funding is major-league issue.  To those outside the lobbyists, lawmakers, health-care organizations and staffers intensely involved, the issue may seem esoteric.  It is not.  Hundreds of millions of Hard-Earned Taxpayer Dollars are involved; health insurance premiums may go up; large organizations may merge; and the availability of medical care may be affected.  It is not a remote war being waged in a foreign field.

A major stumbling block for any plan that raises taxes is the two-thirds vote requirement in each house for a tax hike.

A major question before lawmakers during the special session called by Gov. Jerry Brown is how to allot the MCO payment burden to meet the new federal requirement and retain that $1.1 billion.  Or if they don’t do that, to find some other source of funding that meets the federal rules.  If everything else fails, the money could in theory come from the state’s general fund, in the next state budget, something ardently opposed by Gov. Jerry Brown, or the federal money could simply go away. (Highly unlikely.)

So do lawmakers sock it to every MCO, regardless of whether they have a high percentage of MediCal enrollees or none?  That would meet the feds’ requirement for a broad-based tax.  But should it be a flat per-member, per-month tax, as provided in a bill (AB4) by Democratic Assemblyman Marc Levine of San Rafael?  Or how about Brown’s proposal for a tiered tax that would vary with the size of each MCO’s enrollment?

Brown’s plan is not yet in bill form.  Levine’s proposal would impose a flat monthly tax of $7.88 per enrollee.  Brown’s tiered proposal would impose a monthly tax ranging from 75 cents a month per enrollee to $25.25.

The California Association of Health Care Plans opposes Levine’s proposal, declaring in its oppose letter, “We believe that ABx2 4 increases taxes on the private sector by about $1.2 billion.

“It’s going to be difficult for any legislator to go back home and explain  how they voted to cut health care for millions of Californians.”

“Our member health plans believe that the proceeds of any MCO tax should go back to MediCal managed care to bolster the program. In contrast, AB x2 4 funds other programs with revenue from the tax,” the letter said.  (Levine’s proposal would also help fund a restoration of in-home services and support for the developmentally disabled.)

A major stumbling block for any plan that raises taxes is the two-thirds vote requirement in each house for a tax hike.  Even if Levine’s or Brown’s plan passes the Assembly with a few necessary Republican votes added to those of the Democrats, it will still need Republican votes in the Senate, and so far,  Republicans aren’t having any of it.

“Republicans don’t raise taxes,” state Sen. Jean Fuller of Bakersfield, the state Senate’s new Republican leader, flatly told an August news conference.  She later walked that statement back a bit by saying “anything is possible.”

Democratic Senate President Pro Tem Kevin de León said lawmakers were “in conversations’ about the tax proposals.

“ ‘Negotiations’ is a big stretch,” de León told The Sacramento Bee.

“We’ll climb each hill when we come to it,” Levine said in an interview.  “It’s going to be difficult for any legislator to go back home and explain  how they voted to cut health care for millions of Californians.

“California legislators have demonstrated that they are capable of compromise,” the ever-optimistic Levine added.

The Legislative Analyst’s Office (LAO) says Levine’s bill would provide a more stable revenue stream.  Because of changes in the MCO industry such as consolidation, “… revenue from a tiered tax structure based on each taxpayer’s size of enrollment is vulnerable to shifts in effective tax rates,” the LAO says.  “Thus, compared to a flat tax, a tiered tax is significantly less predictable as a revenue source.”  It would also cost the overall MCO industry more, “In particular, the state’s three largest MCOs would owe substantially more tax under a flat structure,” the LAO reports.

Pan, himself a physician who sees MediCal patients, has touted his bill as a way of cutting down on smoking

The various options have provoked furious rounds of talks behind closed doors — the MCOs, health care associations of various types, legislators and the governor’s office, to name the principal players.

“We’re engaged with all stakeholders,” Levine says. “We’re in conversation with the governor’s people.  They’ve been working very hard to come up with models.  The governor deserves credit for starting the conversation.”

In the minds of some, lawmakers have the luxury of time to devise a solution to the funding problem since the current tax situation can continue until that June 30, 2016 deadline.

But the situation is urgent and action needs to happen right now, during the special session, argues Anthony Wright, executive director of Health Access California.  “If you don’t do it in the next week, you’re putting it off until next year,” he says.  “We’re hoping the end of session deadline provides the impetus to come up with a solution.  It’s very hard to see how you reach a solution without the pressure of a deadline.  These deals are not going to emerge a month ahead of time.”

One possible alternative revenue source comes from State Sen. Richard Pan, a Democrat from Sacramento.  He has introduced a bill that would boost cigarette taxes by about $2 per pack. According to Pan, his bill would raise $1.5 billion during its first year.  Pan, himself a physician who sees MediCal patients, has touted his bill as a way of cutting down on smoking and thereby reducing California’s health care costs.

Wright says Pan’s bill could provide augmenting money that could ease the pain for some MCOs, if lawmakers settle on an MCO tax in some form.

“The key thing is that it is in everybody’s interest to maintain this funding source,” Wright said, referring to the federal matching dollars.

Everyone is interested in generating sufficient funding to continue the restoration of hours for thousands of home-care workers that had been cut by 7 percent and then restored on a temporary, fiscal-year  basis.  The  permanent restoration is dear to the heart of Laphonza Butler, president of the powerful California Service Employees International State Council.

The already fraught situation is made tougher because the alternative plans are being considered during the special session running concurrently with the regular session, meaning swamped lawmakers are also considering hundreds of regular session bills, such as a six-cents-a-gallon hike in gas prices for infrastructure repair and a nickel-a-drink tax on mixed drinks, in addition to wrestling with MediCal.  The special session is due to end Sept. 11, but it could be extended.

Ed’s Note: Chuck McFadden is a regular contributor to Capitol Weekly.


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