The Coalition to Protect Access to Care – what Politico reports as “an amalgam of monied health care interests that includes representatives for doctors, hospitals, health plans and other key players,”-  has filed paperwork to put a November 2024 ballot measure before voters, that would make permanent a tax on health plans and funnel the revenue to certain parts of the health safety net.

The coalition has until March or April to collect 546,651 signatures to qualify for the November ballot, and they’re already a few weeks behind other initiatives.

The coalition that secured a $36 billion tax deal to pump more money into Medi-Cal last June, that followed months of private negotiations between bitter industry rivals, state lawmakers and the governor’s office.wants to make it harder for future administrations to spend that revenue elsewhere.

The battle surrounds the California Managed Care Organization (MCO) tax. An MCO provider tax is a federally allowable Medicaid funding mechanism whereby a taxis imposed by states on health care services where the burden of the tax falls mostly on providers, such as a tax on managed care plans per members served. Provider taxes have become an integral source of financing for Medicaid nationwide.

In California the MCO tax has existed for nearly 20 years and been enacted by both Democratic and Republican governors. Recently AB 115 (Chapter 348, Statutes of 2019) and SB 78 (Chapter 38, Statutes of 2019) authorized a successor MCO tax from July 1, 2019, through December 31, 2022, similar to the 2016 MCO Tax. SB 78 (Chapter 33, Statutes of 2013) extended the MCO tax sunset date from June 30, 2011, to June 30, 2013.

California “taxes” MCOs, and uses the revenue to draw down federal matching funds to support the Medi-Cal program. Specifically, California:
– 1.Imposes a tax on all managed care plans per members served in a prior year.
– – a.The tax varies for Medi-Cal managed care plans compared to non-Medi-Cal managed plans or other managed care plans as seen in proposed budgetlanguage.
– – b.The fee also has tiers based on the number of members served by the managed care plan. Some tiers have no fee and some tiers cap the number of members the fee applies to in that tier.
– 2.Runs several “tests” based on federal rules to ensure the tax structure meets all federal requirements.
– 3.Increases the rates the state pays to Medi-Cal managed care plans to account for thetax. As such, there is no net impact to Medi-Cal managed care plans.
– 4.Uses the collected funds to secure a federal match to support the Medi-Cal program,which results in a General Fund gain.

According to the article in Politico, the last three times California levied this tax on health plans, it used the money to balance the budget during economic downturns. But after the Coalition entered the negotiations earlier this year, which led to the June 2023 agreement, and for the first time, much of the revenue stayed in the health care system, especially in Medi-Cal. – in a year when the state faces a $32 billion budget deficit.

That deal raised rates for primary care, OBGYN care and specialty mental health care and set aside money to cover such costs as emergency room physicians and ambulance services. The new ballot initiative preserves those priorities and adds more, like money for community health workers, specialty dental services, prescription drugs and some clinician and dentist loan repayments.

The ballot initiative sets out a spending plan that hews fairly closely to the priorities laid out in June’s iteration of the tax, which expires in 2026. It assumes that the tax will bring in around $4.3 billion when it’s renewed in 2027.

“We need to make sure that this is permanent and will last beyond the next several years and become something that providers and patients can count on for decades to come,” said Dustin Corcoran, CEO of the California Medical Association and chair of the coalition behind the initiative. “We don’t know what future administrations may or may not do.”

The ballot measure would make the MCO tax that expired on December 31, 2022, and then renewed by the negotiated outcome by industry rivals in June 2023, which will now otherwise expire in 2026 permanent. Any future changes would have to be approved by voters, making it harder for the state to update how it spends the revenue. The tax will be levied on California Managed Care Organizations (MCOs) who will no doubt pass those costs on to the price of ultimately paid on behalf of participants in one of the MCO organizations.  

CMS has indicated they will be issuing new MCO Tax guidelines that will be more restrictive no later than 2026.