State lawmakers worry projected budget surplus saps effort to revise healthcare tax


One of healthcare advocates’ unspoken fears is being voiced by state lawmakers who worry a projected multibillion-dollar budget surplus could weaken political resolve to revamp a soon-to-disappear tax that helps fund healthcare for low-income Californians.

“The lack of alarm is troubling,” state Sen. Holly Mitchell (D-Los Angeles) said at a Tuesday legislative hearing on the fate of California’s managed care organizations, or MCO, tax.

Gov. Jerry Brown called a special legislative session last summer to negotiate a new MCO tax, with the current tax set to expire next summer. But the issue ran headfirst into the long-running refusal of Republicans in either the Assembly or Senate to vote for tax proposals, in addition to criticism by insurance companies that it would have to be passed on to their customers.


But a larger hurdle appeared in November, when the Legislature’s independent analysts projected a tax revenue surplus by the summer of 2017, one that could leave more than $4 billion in unrestricted revenue up for grabs. That’s led a number of legislators, as well as healthcare industry officials, to wonder whether the MCO tax is unnecessary.

“Is that wise and prudent?” Assemblyman Rob Bonta (D-Oakland) said at the hearing, responding to those sentiments and expressing concern that current tax revenue windfalls are temporary. “What about tomorrow?” he said.

The hearing, held in Los Angeles and attended only by Demcratic lawmakers, offered little hope that an agreement for extending the tax is anywhere in sight. Legislators have rarely met since adjourning their regular business in Sacramento on Aug. 31. Last year, federal officials warned the state that the existing tax, which accounts for about $1.1 billion in spending on the state’s Medi-Cal program, must be restructured.

But consensus remains elusive. Nick Louizos, vice president of legislative affairs for the California Assn. of Health Plans, told lawmakers Tuesday that insurers want to make certain a tax imposed on managed care plans would be both “equitable and affordable” and that any money from the tax be used to increase healthcare services, not simply take the place of existing funds that would then be diverted to other government services.

The Brown administration said the sense of urgency should not be allowed to dissipate.

“We are very concerned about entering 2016 without a replacement tax” said Mari Cantwell, chief deputy director of the state Department of Health Care Services.


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