Amended in Assembly August 31, 2015

California Legislature—2015–16 Second Extraordinary Session

Assembly Bill No. 4

Introduced by Assembly Member Levine

(Coauthors: Assembly Members Bloom, Brown, Chau, Chu, Cristina Garcia, Roger Hernández, Jones-Sawyer, McCarty, Nazarian, Quirk, Rendon, Mark Stone, and Williams)

July 16, 2015

An act to amend Section 6172 of, and to amend and repeal Section 17131.9 of, the Revenue and Taxation Code, and to amend begin delete Section 12302.2 of, to amend and repeal Section end delete begin insert Sections 12302.2 and end insert 12306.6 of, and to add begin delete Article 6.3 (commencing with Section 14197.50) end delete begin insert Article 6.4 (commencing with Section 14197.100) end insert to Chapter 7 of Part 3 of Division 9 of, the Welfare and Institutions Code, relating to public social services.

LEGISLATIVE COUNSEL’S DIGEST

AB 4, as amended, Levine. Managed care organization provider tax.

Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid Program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans.

Existing law provides for the county-administered In-Home Supportive Services (IHSS) program, under which qualified aged, blind, and disabled persons are provided with services to permit them to remain in their own homes and avoid institutionalization. Existing law provides, as part of the Coordinated Care Initiative, that IHSS is a Medi-Cal benefit available through managed care health plans in specified counties. Existing law provides for a 7% reduction in hours of service to each IHSS recipient of services.

Existing law imposes a sales tax on providers of support services for the privilege of selling support services at retail, measured by the gross receipts from the sale of those services in this state at a specified rate of those gross receipts. Existing law specifies that a seller is the State Department of Social Services, a county, or other person or entity, as provided. Existing law also imposes a sales tax on sellers of Medi-Cal managed care plans.

This bill would repeal the support services sales tax and would establish a new managed care organization provider tax, to be administered by the department in consultation with the Department of Managed Health Care. The tax would be assessed by the department on licensed health care service plans and managed care plans contracted with the department to provide Medi-Cal services, except as excluded by the bill. The bill would require the health plans to report to the department specified enrollment information, on a quarterly basis, beginning with the 2016-17 state fiscal year. On December 1, 2016, or the date upon which the department receives approval for federal financial participation, whichever is later, the department would commence notification to the health plans of the assessed tax amount and due date for the first taxable quarter. The amount of the tax would be $7.88 per plan enrollee, as defined.

The bill would require the department to request approval from the federal Centers for Medicare and Medicaid Services as necessary to implement the bill. The bill would authorize the department to implement its provisions by means of provider bulletins, all-plan letters, or similar instructions, and to notify the Legislature of this action.

This bill would establish the Health and Human Services Special Fund in the State Treasury, into which all revenues, less refunds, derived from taxes imposed by the bill would be deposited. Moneys in the fund would be used for designated health care purposes, subject to appropriation in the annual Budget Act. The remaining moneys in the fund would be available to the department for the purpose of funding the nonfederal share of Medi-Cal managed care rates, as prescribed, upon appropriation in the annual Budget Act.

This bill would also make conforming and technical changes.

This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

Vote: ²⁄₃. Appropriation:  begin delete yes end delete begin insert no end insert . Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 6172 of the Revenue and Taxation Code
is amended to read:

6172.  

This article shall remain in effect only until July 1, 2016,
and as of January 1, 2017, is repealed.

SEC. 2.  

Section 17131.9 of the Revenue and Taxation Code
is amended to read:

17131.9.  

(a) Gross income does not include any supplementary
payment received by an individual pursuant to Section 12306.6 of
the Welfare and Institutions Code.

(b) This section shall remain in effect only until July 1, 2016,
and as of January 1, 2017, is repealed.

SEC. 3.  

Section 12302.2 of the Welfare and Institutions Code
is amended to read:

12302.2.  

(a) (1) If the state or a county makes or provides for
direct payment to a provider chosen by a recipient or to the
recipient for the purchase of in-home supportive services, the
department shall perform or assure the performance of all rights,
duties and obligations of the recipient relating to those services as
required for purposes of unemployment compensation,
unemployment compensation disability benefits, workers’
compensation, federal and state income tax, and federal old-age
survivors and disability insurance benefits. Those rights, duties,
and obligations include, but are not limited to, registration and
obtaining employer account numbers, providing information,
notices, and reports, making applications and returns, and
withholding in trust from the payments made to or on behalf of a
recipient amounts to be withheld from the wages of the provider
by the recipient as an employer, and transmitting those amounts
along with amounts required for all contributions, premiums, and
taxes payable by the recipient as the employer to the appropriate
person or state or federal agency. The department may assure the
performance of any or all of these rights, duties, and obligations
by contract with any person, or any public or private agency.

(2) Contributions, premiums, and taxes shall be paid or
transmitted on the recipient’s behalf as the employer for any period
commencing on or after January 1, 1978, except that contributions,
premiums, and taxes for federal and state income taxes and federal
old-age, begin delete survivors end delete begin insert survivors, end insert and disability insurance contributions
shall be paid or transmitted pursuant to this section commencing
with the first full month that begins 90 days after the effective date
of this section.

(3) Contributions, premiums, and taxes paid or transmitted on
the recipient’s behalf for unemployment compensation, workers’
compensation, and the employer’s share of federal begin delete old-age
survivors end delete begin insert old-age, survivors, end insert and disability insurance benefits shall
be payable in addition to the maximum monthly amount established
pursuant to Section 12303.5 or subdivision (a) of Section 12304
or other amount payable to or on behalf of a recipient.
Contributions, premiums, or taxes resulting from liability incurred
by the recipient as employer for unemployment compensation,
workers’ compensation, and federal old-age, begin delete survivors end delete begin insert survivors, end insert
and disability insurance benefits with respect to any period
commencing on or after January 1, 1978, and ending on or before
the effective date of this section shall also be payable in addition
to the maximum monthly amount established pursuant to Section
12303.5 or subdivision (a) of Section 12304 or other amount
payable to or on behalf of the recipient. Nothing in this section
shall be construed to permit any interference with the recipient’s
right to select the provider of services or to authorize a charge for
administrative costs against any amount payable to or on behalf
of a recipient.

(b) If the state makes or provides for direct payment to a
provider chosen by a recipient, the Controller shall make any
deductions from the wages of in-home supportive services
personnel that are authorized by Sections 1152 and 1153 of the
Government Code, as limited by Section 3515.6 of the Government
Code.

(c) Funding for the costs of administering this section and for
contributions, premiums, and taxes paid or transmitted on the
recipient’s behalf as an employer pursuant to this section shall
qualify, where possible, for the maximum federal reimbursement.
To the extent that federal funds are inadequate, notwithstanding
Section 12306, the state shall provide funding for the purposes of
this section.

SEC. 4.  

Section 12306.6 of the Welfare and Institutions Code
is amended to read:

12306.6.  

(a) (1) Notwithstanding any other provision of law,
beginning on the date for which the federal Centers for Medicare
and Medicaid Services authorizes commencement of the
implementation of this section, but no earlier than January 1, 2012,
and concurrent with the collection of the sales tax extended to
support services pursuant to Article 4 (commencing with Section
6150) of Chapter 2 of Part 1 of Division 2 of the Revenue and
Taxation Code, a provider of in-home supportive services shall
receive a supplementary payment under this article equal to a
percentage, as set forth in paragraph (2), of the gross receipts, as
defined in subdivision (b) of Section 6150 of the Revenue and
Taxation Code, of the provider for the sale of in-home supportive
services, plus an amount described in paragraph (3) if applicable.
If the underlying payment for in-home supportive services that is
being supplemented is a Medi-Cal payment, then the supplementary
payment shall also be a Medi-Cal payment. Supplementary
payments shall be made only to those providers from whom the
tax imposed pursuant to Section 6151 of the Revenue and Taxation
Code has been collected.

(2) The percentage applicable to the supplementary payment
required by paragraph (1) shall equal the rate described in
subdivision (b) of Section 6151 of the Revenue and Taxation Code
and shall only be applied to services provided under this article,
including personal care option services reimbursable under the
Medi-Cal program.

(3) The supplementary payment of an individual provider whose
payroll withholding required for federal income tax purposes and
for purposes of taxation for the Social Security and Medicare
programs is increased due to the supplementary payment, in
comparison to the amounts for those purposes that would be
withheld without the supplementary payment, shall be increased
by an additional amount that is equal to the amount of this
additional federal withholding.

(b) (1) All revenues deposited in the Personal Care IHSS
Quality Assurance Revenue Fund established pursuant to Section
6168 of the Revenue and Taxation Code shall be used solely for
purposes of the In-Home Supportive Services program, including,
but not limited to, those services provided under the Medi-Cal
program. All supplementary payments required by this section
shall be paid from the Personal Care IHSS Quality Assurance
Revenue Fund.

(2) The Director of Finance shall determine the sum required
to be deposited in the Personal Care IHSS Quality Assurance
Revenue Fund to fund the initial supplementary payments from
the fund. As soon thereafter as reasonably possible, this sum shall
be transferred, in the form of a loan, from the General Fund to the
Personal Care IHSS Quality Assurance Revenue Fund. At the time
sufficient revenues have been deposited in the Personal Care IHSS
Quality Assurance Revenue Fund pursuant to Section 6168 of the
Revenue and Taxation Code to sustain the continued operation of
the fund for that portion of the supplementary payment described
in paragraph (2) of subdivision (a) plus an additional amount equal
to the General Fund loan made pursuant to this paragraph, plus
interest, the sum transferred from the General Fund, including
interest, shall be repaid to the General Fund. Subsequent
supplementary payments pursuant to this section shall be made
from revenue deposited in the Personal Care IHSS Quality
Assurance Revenue Fund pursuant to Section 6168 of the Revenue
and Taxation Code.

(3) The Department of Finance, on an ongoing basis, shall
determine the amount necessary to implement paragraph (3) of
subdivision (a), and subdivision (c) of Section 12302.2, and
immediately transfer this amount from the General Fund to the
Personal Care IHSS Quality Assurance Revenue Fund.

(c) (1) The Director of Health Care Services shall seek all
federal Medicaid approvals necessary to implement this section,
including using the revenues obtained pursuant to Article 4
(commencing with Section 6150) of Chapter 2 of Part 1 of Division
2 of the Revenue and Taxation Code as the nonfederal share for
supplementary payments. As part of that request for approval, the
director shall seek to make the supplementary payments effective
as of January 1, 2012.

(2) This section shall become operative only if the federal
Centers for Medicare and Medicaid Services grants Medicaid
approvals sought pursuant to paragraph (1).

(3) If Medicaid approval is granted pursuant to paragraph (2),
within 10 days of that approval the Director of Health Care
Services shall notify the State Board of Equalization and the
appropriate fiscal and policy committees of the Legislature of the
approval.

(d) If Article 4 (commencing with Section 6150) of Chapter 2
of Part 1 of Division 2 of the Revenue and Taxation Code becomes
inoperative pursuant to subdivision (b) of Section 6170 of the
Revenue and Taxation Code, supplementary payments shall cease
to be made pursuant to subdivision (a) when all moneys in the
fund have been expended.

(e) (1) Notwithstanding the rulemaking provisions of the
Administrative Procedure Act, Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code, the department and the State Department of Health Care
Services may implement and administer this section through
all-county letters or similar instruction from the department and
the State Department of Health Care Services until regulations are
adopted. The department and the State Department of Health Care
Services shall adopt emergency regulations implementing this
section no later than 12 months following the initial effective date
of the supplementary payments. The department and the State
Department of Health Care Services may readopt any emergency
regulation authorized by this section that is the same as or
substantially equivalent to an emergency regulation previously
adopted under this section.

(2) The initial adoption of emergency regulations implementing
this section and the one readoption of emergency regulations
authorized by this subdivision shall be deemed an emergency and
necessary for the immediate preservation of the public peace,
health, safety, or general welfare. Initial emergency regulations
and the one readoption of emergency regulations authorized by
this section shall be exempt from review and approval by the Office
of Administrative Law. The initial emergency regulations and the
one readoption of emergency regulations authorized by this section
shall be submitted to the Office of Administrative Law for filing
with the Secretary of State and each shall remain in effect for no
more than 180 days, by which time final regulations may be
adopted.

(f) This section shall remain in effect only until July 1, 2016,
and as of January 1, 2017, is repealed.

SEC. 5.  

Article begin delete 6.3 end delete begin insert 6.4 end insert (commencing with Section begin delete 14197.50) end delete
begin insert 14197.100) end insert is added to Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code, to read:

 

Article begin delete 6.3. end delete begin insert 6.4. end insert   Managed Care Organization Provider Tax

 

begin delete 14197.50. end delete
begin insert 14197.100. end insert   

(a) The Legislature finds and declares the
following:

(1) California’s expansion of health care coverage has resulted
in more than four million additional Californians receiving
coverage through Medi-Cal.

(2) California is in need of at least one billion one hundred
million dollars ($1,100,000,000) annually to stabilize the cost of
Medi-Cal.

(3) The In-Home Supportive Services Program provides vital
services to elderly and disabled populations across our state to
ensure that they are able to remain in their homes and continue to
receive the care and attention they need.

(4) Thousands of dedicated care providers have suffered years
of rate cuts to In-Home Supportive Services and are in desperate
need of begin insert a end insert stable funding source.

(5) The State Department of Developmental Services oversees
the care of our state’s most vulnerable population, and these
services have continuously been underfunded.

(6) As the state transitions away from the use of developmental
centers, a population of medically fragile and behaviorally
challenged individuals will need to identify adequate care in the
community.

(7) It is essential that these programs be funded through a
reliable funding mechanism that allows services to be provided
on an ongoing basis.

(b) Accordingly, it is the intent of the Legislature that the State
Department of Health Care Services implement a managed care
organization provider tax, effective July 1, 2016, to provide reliable
ongoing funding for the Medi-Cal program, minimize to the extent
possible any need for new reductions to the program, and meet all
of the following goals:

(1) Generate an amount of nonfederal funds for the Medi-Cal
program equivalent to the funds generated by the tax imposed
pursuant to Article 5 (commencing with Section 6174) of Chapter
2 of Part 1 of Division 2 of the Revenue and Taxation Code.

(2) In addition to the amount in paragraph (1), and in a manner
consistent with Section 12301.03, generate an amount of nonfederal
funds sufficient to offset the 7 percent reduction to the In-Home
Supportive Services Program imposed pursuant to Section
12301.02.

(3) Comply with federal Medicaid requirements applicable to
permissible health care-related taxes.

(4) Provide begin insert sufficient end insert funding for begin insert community- end insert begin insert based end insert
developmental begin delete services at rates that end delete begin insert services, to end insert allow for
begin delete appropriate levels of service. end delete begin insert no less than a 10- end insert begin insert percent increase
in levels of services and supports. end insert

begin delete 14197.51. end delete
begin insert 14197.101. end insert   

The following definitions shall apply for purposes
of this article:

(a) “Countable enrollee” means an individual enrolled in a health
plan, as defined in subdivision (e), each month of a taxable quarter.
“Countable enrollee” does not include an individual enrolled in a
Medicare plan, or a plan-to-plan enrollee, as defined in subdivision
(g).

(b) “Department” means the State Department of Health Care
Services.

(c) “Director” means the Director of Health Care Services.

(d) “Excluded plan” means a health plan licensed pursuant to
Section 1351.2 of the Health and Safety Code.

(e) “Health care service plan” or “health plan” means a full
service health care service plan licensed by the Department of
Managed Health Care under the Knox-Keene Health Care Service
Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340)
of Division 2 of the Health and Safety Code) or a managed care
plan contracted with the State Department of Health Care Services
to provide Medi-Cal services.

(f) “Per enrollee tax amount” means the amount of tax assessed
per countable enrollee within a taxing tier.

(g) “Plan-to-plan enrollee” means an individual who receives
his or her health care services through a full service health plan
pursuant to a subcontract from another full service health plan.

(h) “Taxable quarter” means a calendar quarter of the state fiscal
year.

begin delete 14197.52. end delete
begin insert 14197.102. end insert   

(a) The Health and Human Services Special Fund
is hereby created in the State Treasury.

(b) All revenues, less refunds, derived from the taxes provided
for in this article shall be deposited in the State Treasury to the
credit of the fund.

(c) Notwithstanding Section 16305.7 of the Government Code,
any interest and dividends earned on moneys in the fund shall be
retained in the fund for the purposes specified in subdivisions (d)
and (e).

(d) Subject to an appropriation in the annual Budget Act, moneys
in the fund shall be available for health services including, but not
limited to, all of the following:

(1) To the State Department of Social Services, to offset the
reductions to the In-Home Supportive Services Program imposed
pursuant to Section 12301.02, not to exceed an amount beyond a
7 percent reduction in hours of service, in a manner consistent with
Section 12301.03.

(2) To the State Department of Health Care Services, for
purposes of reinstating begin insert rates to offset end insert previous begin insert freezes and end insert
reductions to Medi-Cal reimbursement rates pursuant to Sections
begin delete 14105.192 end delete begin insert 14105.07, 14105.192, end insert and 14105.194.

(3) To the State Department of Developmental Services, for
purposes of begin delete increasing end delete begin insert providing no less than a 10- end insert begin insert percent increase
in end insert provider rates for vendor begin delete services, establishing end delete begin insert services and
funds to community-based service providers, and to establish end insert
adequate care for those individuals transitioning out of the
developmental begin delete centers, and providing funds to community-based
resources. end delete begin insert centers. end insert

(e) Subject to an appropriation in the annual Budget Act, after
meeting the funding obligations pursuant to subdivision (d), the
remaining funds deposited in the Health and Human Services
Special Fund pursuant to this article shall be available to the State
Department of Health Care Services for purposes of funding the
nonfederal share of Medi-Cal managed care rates for children,
adults, begin delete seniors and end delete begin insert seniors, end insert persons with disabilities, begin insert aging and
disability resource centers, end insert and persons dually eligible for
Medi-Cal and Medicare.

begin delete 14197.53. end delete
begin insert 14197.103. end insert   

(a) Beginning with the 2016-17 state fiscal year,
each health plan, within 45 days after the end of each state fiscal
quarter, shall submit a report to the department for the state fiscal
quarter that includes all of the following information:

(1) Total cumulative enrollment for the quarter.

(2) Total Medicare cumulative enrollment for the quarter.

(3) Total Medi-Cal cumulative enrollment for the quarter.

(4) Total plan-to-plan cumulative enrollment for the quarter.

(5) Total other cumulative enrollment for the quarter that is not
otherwise counted in paragraphs (2) through (4), inclusive.

(b) The department, in consultation with the Department of
Managed Health Care, shall develop the methodologies used to
determine the enrollments required to be reported by health plans
and the format of those submissions.

(c) A report submitted under this section shall be accompanied
by a certification by the health plan attesting to the accuracy of
the reports.

(d) For the efficient operation of this section, the director, in
consultation with the Director of the Department of Managed
Health Care, may delegate the development of the format of the
reports or the collection of the reports, or both, to the Department
of Managed Health Care.

begin delete 14197.54. end delete
begin insert 14197.104. end insert   

(a) A managed care organization provider tax shall
be imposed on every health plan that is not an excluded plan.

(b) The department shall compute the quarterly tax for each
health plan subject to the tax during the fiscal year, pursuant to
Section begin delete 14197.55. end delete begin insert 14197.105. end insert

(c) On December 1, 2016, or the date the department receives
federal approval necessary for receipt of federal financial
participation in conjunction with the tax created by this article,
whichever is later, the following activities shall commence:

(1) The director shall certify in writing that federal approval
has been received, and within begin delete 5 end delete begin insert five end insert business days shall post the
certification on its Internet Web site and send a copy of the
certification to the Secretary of State, the Secretary of the Senate,
the Chief Clerk of the Assembly, and the Legislative Counsel.

(2) Within 10 business days following the receipt of the notice
of federal approval, the department shall send a notice to each
health plan subject to the tax, which shall contain the following
information:

(A) The quarterly tax due for the first taxable quarter, and any
subsequent taxable quarters for which data has been submitted and
a tax has been calculated.

(B) The date on which the tax payments are due.

(3) A health plan shall pay the quarterly tax, based on a schedule
developed by the department. The department shall establish the
date that each payment is due, provided that the first payment shall
be due no earlier than 20 days following the date the department
sends the notice pursuant to paragraph (2), and the payments shall
be paid at least one month apart, but no more than one quarter
apart.

(4) A health plan shall pay the quarterly taxes that are due, if
any, in the amounts and at the times set forth in the notice, unless
superseded by a subsequent notice issued by the department.

(d) The managed care organization provider tax, as assessed
pursuant to this article, shall be paid to the department by each
health plan subject to the tax, and deposited by the department into
the Health and Human Services Special Fund created pursuant to
Section begin delete 14197.52. end delete begin insert 14197.102. end insert

(e) (1) Interest shall be assessed on managed care organization
provider taxes that are not paid on the date due at a rate of 10
percent per annum. Interest shall begin to accrue the day after the
date the payment was due, and shall be deposited in the Health
and Human Services Special Fund created pursuant to Section
begin delete 14197.52. end delete begin insert 14197.102. end insert

(2) If a tax payment is more than 60 days overdue, a penalty
equal to the interest charge described in paragraph (1) shall be
assessed and due for each month for which the payment is not
received after 60 days.

(f) (1) Subject to paragraph (2), the director may waive any or
all interest and penalties assessed under this article in the event
that the director determines, in his or her sole discretion, that the
health plan has demonstrated that imposition of the full amount
of the managed care organization provider tax pursuant to the
timelines applicable under this article has a high likelihood of
creating an undue financial hardship for the health plan, or creates
a significant financial difficulty in providing needed services to
Medi-Cal beneficiaries.

(2) Waiver of some or all of the interest or penalties imposed
pursuant to this subdivision shall be conditioned on the health
plan’s agreement to make tax payments on an alternative schedule
developed by the department that takes into account the financial
situation of the health plan and the potential impact on services.

(g) For the efficient operation of this section, the director, in
consultation with the Director of the Department of Managed
Health Care, may delegate the collection of the taxes under this
article to the Department of Managed Health Care.

begin delete 14197.55. end delete
begin insert 14197.105. end insert   

(a) Effective July 1, 2016, in order to achieve the
goals specified in Section begin delete 14197.50, end delete begin insert 14197.100, end insert the per enrollee
tax amount shall be seven dollars and eighty-eight cents ($7.88).

(b) The department shall request approval from the federal
Centers for Medicare and Medicaid Services as is necessary to
implement this article. In making the request, the department may
seek, as it deems necessary, a request for waiver of the broad based
requirement, waiver of the uniformity requirement, or both,
pursuant to paragraphs (1) and (2) of subsection (e) of Section
433.68 of Title 42 of the Code of Federal Regulations, or a request
for waiver of any other provision of federal law or regulation
necessary to implement this article.

(c) Notwithstanding Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code,
the department may implement this article by means of provider
bulletins, all plan letters, or other similar instruction, without taking
legal regulatory action. The department shall provide notification
to the Joint Legislative Budget Committee and to the Senate
Committees on Appropriations, Budget and Fiscal Review, and
Health and the Assembly Committees on Appropriations, Budget,
and Health within 10 business days after the above-described action
is taken to inform the Legislature that the action is being
implemented.