Love and the Health Plans: MCO Tax Proposal Imminent with Details to Follow

February 11, 2016

Love is in the air and the largest health plan association is not immune. Several media outlets are reporting that a new Managed Care Organization (MCO) tax is getting support from the California Association of Health Plans.

Details of the new plan are not yet released, but it seems as though the insurance companies will give a little, to get a little. Insurance companies will pay a tax for the match from the federal government, but will also get some additional tax breaks for a three-year period.

The tax must get love (love is defined as a two-thirds approval vote) from the legislature. But, similar to every girl’s need for a best friends’ nod of approval when introducing a new beau, the nod of approval from the California Association of Health Plans on the new MCO tax plan is not insignificant.

The MCO tax has been a source of tension since the Centers for Medicare and Medicaid Services (CMS) informed California their current structure was not acceptable and is at risk of losing $1 billion for the Medi-Cal program. Currently, only Medi-Cal managed care plans incur the tax that is matched by the federal government for additional money, violating federal health care-related tax rules on who (“broad-based”) and how (“no hold harmless”) the tax is levied. Without the $1 billion, a new source of revenue would be needed to makeup for the loss from the MCO tax or cuts to the Medi-Cal program and/or cuts to other non-Medi-Cal programs supported by California’s General Fund would need to take place.

It is in everyone’s best interest that Cupid’s arrow was able to bring about the love fest between Governor Brown and the California Association of Health Plans. The final arrow has to hit its target — a 2/3rds vote in the legislature, as early as next week.

ITUP will be sure to report out the specifics of the plan as details emerge.