Special Session on Healthcare – Informational Hearings

This week, the Legislature held two informational hearings as part of the 2015-16 Second Extraordinary Session on healthcare. These hearings were convened to help lawmakers, and the public, understand approaches to structuring a Managed Care Organization (MCO) tax and the state of Medi-Cal funding more broadly. The current MCO tax only applies to health plans that participate in Medi-Cal and these plans largely get their money back, with federal matching funds, through their capitated payments. New federal rules require the MCO tax to be broad-based, meaning it needs to apply to all health plans and not just those that participate in Medi-Cal.

Senate Hearing on the MCO Tax

Yesterday, the Senate Committee on Public Health and Developmental Services Committee held an informational hearing on the MCO tax, focusing specifically on the differences between a flat and tiered tax structure. California’s current MCO tax generates about $1.1 billion in non-federal revenue per year and is used to draw down additional federal funds and offset state general fund costs for Medi-Cal. The current MCO tax expires in July 2016 and a new taxing structure that meets federal requirements needs to be in place by then. In addition to preventing a $1 billion shortfall in the Medi-Cal program when the current MCO tax expires, the Administration also wants to use revenues from the MCO tax to fund restoration of the 7 percent cut to In-Home Support Services (IHSS) providers, which help nearly 500,000 seniors and people with disabilities with assistance so they can remain in their homes.

Senator Ed Hernandez, Chair of the Committee, said it is very important for the state to come up with a new MCO tax this year. Vice Chair Mike Morrell expressed skepticism and reservations about imposing any new taxes, fees, or costs on health plans.

Katherine Wilson of CHCF gave an overview of California’s health insurance industry. The LAO’s Felix Su discussed the trade-offs between a tiered and flat MCO  tax, in terms of revenue stability and who bears the tax burden. DHCS Director Jennifer Kent and Nick Louizos of the California Association of Health Plans talked about the modeling they’ve done in search of a new MCO tax structure. The presenters generally agreed that it is challenging to find an approach that is broad-based and appropriately accounts for plan size (in terms of overall enrollment) and participation in Medi-Cal. There was also debate about when a solution needs to be reached, given that the current tax expires next year. The Administration and many legislators would like to resolve this issue now, rather than wait until the current tax expires. Others think this issue can be handled next year. Hearing materials, including a background piece, slide presentations, and the LAO’s analysis of a tiered vs. tax flat structure, are available here.

Assembly Hearing on Medi-Cal

Today, the Assembly Public Health and Developmental Services Committee held an informational hearing on “Supporting and Enhancing California’s Medi-Cal Program.” Mari Cantwell, Chief Deputy Director at DHCS provided an update on the Medi-Cal program and the improvements that are planned under the pending 1115 waiver renewal. Thanks to ACA expansion and other changes, Medi-Cal has an additional 4 million enrollees and pays for over half the births in California. The state needs to make sure there is a delivery system in place to serve the program’s 12 million enrollees. A panel representing providers (hospitals, doctors, community clinics and dentists) emphasized the need to bring up provider rates in order to improve access to Medi-Cal. They also discussed talked about how the loss of the MCO tax ($1.1 billion, along with the federal funds we wouldn’t be able to leverage) would be detrimental to the Medi-Cal program. The panel also mentioned other sources for funding, including the tobacco tax.

A stakeholder panel representing health care workers and health care consumers elaborated on how the tobacco tax can help. Michelle Cabrera from SEIU noted that income inequality contributes to the fact that 1 in 3 Californians rely on Medi-Cal for healthcare. If we want to reduce reliance on Medi-Cal, then we need to ensure our public policies provide opportunities for people to move out of poverty. Linda Nguy of Western Center on Law and Poverty discussed the need to hold Medi-Cal managed care plans and providers accountable for providing care. Anthony Wright, Executive Director at Health Access, said that when it comes to access to Medi-Cal, “part of the answer is money, and part of the answer is accountability.” In addition to restoring cuts to provider rates, Wright clarified, we also need stronger oversight over Medi-Cal managed care plans so they can fulfill the promise to deliver care to patients through adequate networks, timely access standards, and accurate provider directories.

The CA Budget and Policy Center has a helpful blog post about the special legislative session on health: http://calbudgetcenter.org/blog/unfinished-business-the-special-legislative-session-on-health-and-human-services/