Dan Walters

By Dan Walters
December 1, 2015

  • State has levied special tax to finance Medi-Cal
  • Feds say that tax is no longer acceptable
  • Gov. Brown struggles to write a replacement

For years, the state has conducted something of a shell game to help finance Medi-Cal, its health insurance system for the poor that now covers nearly a third of Californians.

California imposed a special tax on “managed care organizations” that handle Medi-Cal recipients and used it to qualify for additional federal funds. The insurers got back all of their tax money and then some, and the state general fund gained additional money for other uses.

Finally, however, the feds told California and other states to stop playing the game and decreed that any tax aimed at drawing down additional federal medical care funds had to be broader than just those benefiting from the exchange.

That decree creates, Gov. Jerry Brown’s administration says, a potential $1.1 billion hole for the 2016-17 budget and beyond, and he has proposed to replace the “MCO tax,” as it’s dubbed, with a new levy.

Initially, it was to be a multi-tiered tax that would be calculated on all managed care patients, not just those enrolled in Medi-Cal, but the insurers balked, saying taxing private enrollees would be unfair and could make their premiums unaffordably high.

But that was just one problem that Brown faced. The most recent version of the tax was adopted in 2013, when Democrats had supermajorities in both legislative houses and thus were able to pass taxes without any Republican votes.

The supermajorities are history and Republicans have been unwilling to entertain any targeted tax increases Brown seeks for either medical care or highway repairs.

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