BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1422 (Bass)
Hearing Date: 8/27/2009 Amended: 8/25/2009
Consultant: Katie Johnson Policy Vote: Health 7- 0 Rev&Tax
6-1
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BILL SUMMARY: AB 1422, an urgency measure, would provide that
Medi-Cal managed care plans would be subject to the gross
premiums tax on insurers. The bill would also increase the
premiums paid by Healthy Families Program enrollees and would
provide the California Children and Families Commission with
increased flexibility to transfer monies among its various
funds.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Gross premiums ($157,000)
($78,500)$0 General
tax revenue
Payment to Medi-Cal $60,000 $30,000 $0General
Payment to Healthy $97,000 $48,500 $0General
Families Program
Healthy Families Program (at least $5,500) (at least $5,500) (at
least $5,500) General
Premium increases
(revenue)
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STAFF COMMENTS:
Gross Premiums Tax on Medi-Cal Managed Care Plans
This bill would subject Medi-Cal managed care plans to the gross
premiums tax assessed on insurers pursuant to section 28 of
article VIII of the California Constitution. Existing law
provides that insurers, generally defined as property insurance,
life insurance, casualty insurance and some preferred provider
organizations and point of service plans, are assessed a 2.35
percent tax on their annual gross premiums. The tax is collected
by the California Department of Insurance (CDI) and deposited
into the state General Fund. It is assessed in lieu of all other
taxes with only specific exemptions such as for taxes upon real
estate and vehicle license fees, among others. Generally, these
insurers are regulated by CDI.
Health care service plans that are regulated by the Department
of Managed Health Care (DMHC), including Medi-Cal managed care
plans, are generally not subject to the gross premiums tax.
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AB 1422 (Bass)
This bill would require Medi-Cal managed care plans to make
prepayments four times each year of 25 percent of the annual
amount of the tax for the current calendar year, but would
provide that no prepayments would be required to be paid prior
to the effective date of these provisions.
Currently, Medi-Cal managed care plans, which operate in 23 of
California's 58 counties, are subject to a quality improvement
fee (QIF) of 5.5 percent of their annual revenues. In FY
2008-2009, it is estimated that the QIF revenues netted $238.8
million General Fund. Existing state and federal law require
that Medi-Cal managed care plans be paid actuarially sound
rates. This type of calculation takes into consideration the
costs the plans incur and the populations that they serve.
Changes in federal law have resulted in the discontinuation of
the QIF on October 1, 2009.
Existing federal Medicaid law permits states to assess provider
taxes to be used as non-federal funds to draw down federal
Medicaid matching funds. However, there are specific
requirements to a provider tax, including that the tax be
"broad-based" and uniformly imposed throughout a jurisdiction
and that payers of the tax may not be "held harmless" for their
portion of the tax. The current QIF on Medi-Cal managed care
plans would have violated those provisions.
Because the gross premiums tax is an existing tax and on a broad
group of insurers, it can be extended to Medi-Cal managed care
plans without the necessity of meeting federal provider tax
requirements. Dental managed care plans would be exempt from the
gross premiums tax. They are also currently exempt from paying
the QIF.
This bill would provide that the total revenues derived from
this tax on Medi-Cal managed care plans be continuously
appropriated as follows: 38.41 percent to DHCS for Medi-Cal and
61.59 percent to MRMIB for the Healthy Families Program. The
total revenues are expected to total $157 million on an annual
basis. $60 million General Fund, the 38.41 percent of the total
revenues, and its federal match would be paid to DHCS, and the
remaining $97 million, the 61.59 percent of the total revenues,
would go to MRMIB annually. The MRMIB portion would then serve
as the 35 percent non-federal match to draw down 65 percent in
Children's Health Insurance Program (CHIP) funds. This tax would
be imposed on Medi-Cal managed care plans' annual revenues
beginning January 1, 2009. The tax provisions of this bill would
sunset January 1, 2011.
State Medi-Cal monies are generally matched dollar for dollar by
the federal government. However, as a result of the passage of
the American Reinvestment and Recovery Act (ARRA) in February of
2009, the Federal Medical Assistance Percentage (FMAP) increased
from 50 percent to 61.59 percent. Thus, retroactively from
October 1, 2008 through December 31, 2010, the federal
government would pay for approximately 61.59 percent and the
state General Fund would pay for 38.41 percent of
benefit-related Medi-Cal expenditures. After December 31, 2010,
the FMAP reduces to 50 percent federal funds, 50 percent General
Fund.
The provisions related to assessing the gross premiums tax on
Medi-Cal managed care plans would have no force or effect if
specified conditions occur, including the lack of
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AB 1422 (Bass)
federal approval and federal matching funds, the revenues raised
by this tax were used for purposes other than those identified
in this bill, and if a judicial determination that this
methodology is invalid, unlawful, or in violation of federal
regulations or that this tax is required to be in lieu of all
other taxes that insurers must ordinarily pay.
This bill would provide that is there is a delay in the
calculation of rates by DHCS, a Medi-Cal managed care plan would
be assessed the amount it would be required to pay, but would
not be required to actually pay the tax until the rates are
paid. DHCS would have the authority to retroactively increase
rates and make payments to plans.
California Children and Families Commission Funds Flexibility
This bill would permit the California Children and Families
Commission, which was created by Proposition 10 of 1998 and is
funded by a tax equivalent to $0.50 on a pack of cigarettes, to
transfer any unneeded funds to its Unallocated Account from the
Mass Media Communications, the Education, the Child Care and the
Research and Development Accounts upon approval by the
commission.
This bill would declare legislative intent that these changes
further the purpose of the California Children and Families Act
of 1998.
On August 13, 2009, the commission approved the transfer of
$81.4 million from the commission to the Healthy Families
Program to provide health care coverage for children 0 - 5 years
of age until June 2010.
This bill would state legislative intent that the Director of
Finance would be required to make the necessary budgetary
adjustments to allow the expenditure of funds allocated by the
commission and would require that, within 30 days of making any
budgetary adjustments, the Director of Finance notify the Joint
Legislative Budget Committee and the fiscal and appropriate
policy committees of the Legislature of those actions.
Healthy Families Program Premiums Increase
In the FY 2009-2010 budget, the Healthy Families Program was cut
$194 million in General Funds. The program provides
comprehensive health care coverage to children who are
ineligible for free Medi-Cal and whose family income is equal to
or less than 250 percent of the federal poverty level (FPL) and
is administered by the Managed Risk Medical Insurance Board
(MRMIB). There are approximately 950,000 children enrolled in
the program and MRMIB estimated that the budget cuts would
necessitate a freeze in enrollment and the disenrollment of
approximately 650,000 enrollees, beginning in October 1, 2009.
In addition to this measure and the award of $81.4 million from
the California Children and Families Commission, MRMIB plans to
make programmatic changes to produce savings that would
eliminate the remaining budget shortfall of approximately $15.6
million. During FYs 2009-2010 and 2010-2011, this bill would
allow MRMIB to adopt emergency regulations to modify health,
dental, and vision benefits or
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AB 1422 (Bass)
program requirements and operations. Healthy Families Program
premiums may only be increased through statute; they cannot be
changed by an action of the board nor through regulations.
Commencing November 1, 2009, this bill would increase premiums
paid by families of enrollees in the Healthy Families Program,
as specified, with family incomes between 150 percent and 250
percent of the FPL and would require the program to notify
families whose premiums would increase. The premium changes
would be as follows:
For the lower cost Family Value Package:
a) 150 - 200 percent FPL: change from $9 to $13 per child
per month with a family maximum per month change of $27 to
$39 per month;
b) 200 - 250 percent FPL: change from $14 to $21 per child
per month with a family maximum change of $42 to $63 per
month.
For the higher cost Family Value Package:
a) 150 - 200 percent FPL: change from $12 to $16 per child
per month with a family maximum per month change of $36 to
$48 per month;
b) 200 - 250 percent FPL: change from $17 to $24 per child
per month with a family maximum per month change of $51 to
$71 per month.
Premiums for enrollees with family incomes below 150 percent of
the FPL would remain unchanged.
MRMIB estimates a savings of at least $5.5 million in FY
2009-2010 assuming a November 1, 2009, effective date for the
higher cost package based on MRMIB data presented at its August
20, 2009, board meeting. Savings associated with premium
increases associated with the lower cost package are unknown.
Ongoing savings would be of a similar magnitude.