BILL ANALYSIS Ó
SENATE COMMITTEE ON PUBLIC HEALTH AND DEVELOPMENTAL SERVICES
Senator Ed Hernandez, O.D., Chair
BILL NO: SBX2 14
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|AUTHOR: |Hernandez |
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|VERSION: |September 9, 2015 |
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|HEARING DATE: |September 10, | | |
| |2015 | | |
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|CONSULTANT: |Scott Bain, Teri Boughton, Mareva Brown, |
| |Myriam Bouaziz |
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SUBJECT : Tobacco: electronic cigarettes: taxes: managed care
organization provider tax: in-home supportive services.
SUMMARY : This bill imposes an additional excise tax of $2 per package
of 20 cigarettes, imposes an equivalent one-time "floor stock
tax" on the cigarettes held or stored by dealers and
wholesalers, and indirectly increases the tobacco products tax.
Imposes a tax on electronic cigarettes equivalent to the $2 per
package tax imposed on cigarettes by this bill. Requires revenue
from tobacco and electronic cigarette taxes to be used for
various tobacco use prevention and research, law enforcement,
medical school education, for improved payments for Medi-Cal
funded services, and to backfill existing tobacco-tax funded
services for any revenue decline resulting from the additional
tax. Imposes a managed care organization provider tax (MCO tax)
on health plans, with different taxing tiers based on
enrollment. Continuously appropriates funds from the MCO tax for
purposes of funding the nonfederal share of Medi-Cal managed
care rates, and transfers $230 million, to be used upon
appropriation by the Legislature, to increase the funding
provided to regional centers and to increase rates paid to
providers of service to the developmentally disabled. Repeals
the 7% reduction in hours of service to each In-Home Supportive
Services recipient of services..
Existing law:
1)Imposes an 87 cents tax per pack of 20 cigarettes on
distributors of cigarettes and tobacco products, which funds a
variety of programs and services including: tobacco-related
health education, tobacco-related disease research, hospital
and physician services, fire prevention, environmental
SBX2 14 (Hernandez) Page 2 of ?
conservation, breast cancer research and early detection
services, and early childhood development programs.
2)Requires the Board of Equalization (BOE), under the Cigarette
and Tobacco Products Licensing Act of 2003 (Licensing Act), to
administer a statewide program to license manufacturers,
importers, distributors, wholesalers and retailers of
cigarettes and tobacco products.
3)Establishes 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 for a 7% reduction in hours of service
to each IHSS recipient of services.
4)Establishes the Medi-Cal program, administered by the
Department of Health Care Services (DHCS), under which health
care services are provided to qualified, low-income persons.
Under existing law, one of the methods by which Medi-Cal
services are provided is through contracts with various types
of managed care plans.
5)Imposes a sales tax on sellers of Medi-Cal managed care
organizations (MCOs), until July 1, 2016.
6)Requires, under the Lanterman Developmental Disabilities
Services Act, the Department of Developmental Services (DDS)
to contract with regional centers to provide services and
supports to individuals with developmental disabilities. Under
existing law, the regional centers purchase needed services
for individuals with developmental disabilities through
approved service providers or arrange for those services
through other publicly funded agencies. The annual Budget Act
also appropriates funds to DDS to fund regional center
operations.
7)Establishes specified rates to be paid to certain
developmental service providers and the rates to be paid for
SBX2 14 (Hernandez) Page 3 of ?
certain developmental services. Requires that rates to be paid
to other developmental service providers either be set by DDS
or negotiated between the regional center and the service
provider.
This bill:
1)Imposes an additional excise tax of $2 per package of 20
cigarettes, and imposes a one-time "floor stock tax" on the
cigarettes held or stored by dealers and wholesalers.
2)Imposes a tax on electronic cigarettes equivalent to the $2
per package tax
imposed on cigarettes by this bill.
3)Expands the definition of "tobacco products" to include
electronic cigarettes, as defined, for purposes of the
Licensing Act, thereby subjecting manufacturers, importers,
distributors, wholesalers, and retailers of e-cigarettes to
the same licensing requirements imposed under the Licensing
Act applicable to tobacco products.
4)Creates the California Health Care, Developmental Services,
and Prevention Tobacco Tax Act Fund of 2015 in the State
Treasury, and requires all revenue from the $2 excise tax
increase and equivalent tax on e-cigarettes be deposited in
this fund.
5)Prohibits the cigarette and e-cigarette taxes imposed by this
bill from being considered part of the General Fund, or be
considered General Fund revenue for purposes of Proposition
98.
6)Establishes the California Health Care, Research, and
Prevention Tobacco Tax Act of 2015 in the State Treasury as a
continuously appropriated fund, to be used for the following
purposes:
a) To offset the revenue decrease resulting from
the imposition of the additional tax in this bill on
SBX2 14 (Hernandez) Page 4 of ?
the existing tobacco-tax funded Breast Cancer Fund,
Proposition 99 and Proposition 10-funded programs
based on the decrease in tobacco consumption resulting
from the additional tax imposed by this bill;
b) To reimburse the Board of Equalization (BOE)
in the administration, calculation, and collection of
the tax, the calculation and distribution of funds and
in regulation promulgation, with a 1% cap for
administrative costs;
c) To reimburse the State Auditor up to $400,000
for actual costs incurred to conduct audits required
by this bill;
d) To provide $40 million in funding to the
University of California (UC) for the purpose and goal
of increasing the number of physicians trained in
California;
e) To provide $48 million for the purpose of
funding law enforcement efforts and investigative
activities to reduce illegal sales of tobacco
products, illegal sales to minors, reduce cigarette
smuggling, tobacco tax evasion and counterfeit tobacco
products, to enforce licensing requirements, to
enforce tobacco-related laws, court judgments and
legal settlements, and to conduct law enforcement
training and technical assistance for tobacco-related
statutes, provided these funds are not used to
supplant existing state or local funds. Apportions
these funds in the following manner:
i. $30 million to the Department of
Justice to be distributed to local law
enforcement to support and hire front-line law
enforcement peace officers;
ii. $6 million to BOE to be used to
enforce laws that regulate the distribution and
retail sale of cigarettes and other tobacco
products;
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iii. $6 million to the Department of
Public Health (DPH) to be used to support
programs, including grants to local law
enforcement agencies to provide training and
funding for the enforcement of state and local
laws related to the illegal sales of tobacco to
minors;
iv. $6 million to the Attorney General
to be used for activities including enforcing
laws that regulate the distribution and sale of
cigarettes and tobacco products.
f) Requires the BOE, beginning two years after
the effective date of this bill, to determine the
reduction in revenues from a reduction in cigarette
and tobacco product consumption due to the additional
taxes. Requires BOE, if it determines there has been a
reduction, to reduce the amounts in a) through e)
above proportionately.
7)Requires the Controller to allocate, after the transfers in 6)
above, the remaining moneys as follows:
a) 82% to the Health Care Treatment Fund, to be
used by DHCS to increase funding for existing Medi-Cal
health care programs and services by providing
improved payments, including funding support for
county and UC hospitals and the governmental entities
with which they are affiliated, for the nonfederal
share of payments. Requires, to the extent possible,
payments and support to be increased based on criteria
developed and updated by DHCS in consultation with the
Legislature as part of the annual state budget
process, provided these funds are used to supplant
existing state general funds for these same purposes.
Requires the criteria to include, but not be limited
to, ensuring timely access, specific geographic
shortages of services or ensuring quality care.
Requires, consistent with federal law, the funding to
be used to draw down federal funds;
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b) 13% for the purpose of funding comprehensive
tobacco prevention and control programs, provided that
these funds are not used to supplant existing state or
local funds, apportioned in the following manner:
i. 85% to DPH for tobacco control
programs, and requires DPH to award funds to
local government and community-based organization
for the implementation, evaluation and
dissemination of evidence-based health promotion
and health communication activities in order to
monitor, evaluate and reduce tobacco use,
tobacco-related disease rates and health
disparities;
ii. 15% to the Department of Education
for school programs to prevent and reduce the use
of tobacco and nicotine products by young people;
c) 5% to the UC Tobacco-Related Disease Research
Program for basic, applied and translational medical
research in California into the prevention of, early
detection of, treatments for, complementary treatments
and potential cures for all types of cancer,
cardiovascular and lung disease, oral disease and
tobacco-related diseases.
8)Requires the State Auditor to define "administrative costs"
via regulation, and caps administrative costs at specified
amounts.
9)Requires the State Auditor to conduct at least biennially an
independent financial audit of the state and local agencies
receiving tobacco tax funds. Requires the State Auditor to
prepare a report detailing its review, including any
recommendations for improvements.
10)Requires state agencies and departments receiving tobacco tax
funds under this bill to publish on an annual basis on their
internet web site an accounting of how much money was
received, and how the money was spent.
SBX2 14 (Hernandez) Page 7 of ?
11)Repeals a provision of law that reduces by 7% the hours of
service for each IHSS recipient.
12)Establishes a new MCO tax, to be administered by DHCS, in
consultation with the Department of Managed Health Care
(DMHC).
13)Assesses the MCO tax on health plans licensed by DMHC and
managed care plans contracted with DHCS to provide Medi-Cal
services, with some exceptions, as specified.
14)Requires health plans to report to DHCS specified enrollment
information, on a quarterly basis, beginning with the 2016-17
state fiscal year.
15)Establishes applicable taxing tiers and per enrollee amounts
for the 2016-17 fiscal year. Requires, commencing with the
2017-18 fiscal year, DHCS and DMHC to determine tax tiers and
per enrollee tax amounts. Requires DHCS to request approval
from the federal Centers for Medicare and Medicaid Services as
necessary to implement these provisions.
16)Establishes the Health and Human Services Special Fund in the
State Treasury, into which all revenues, less refunds, derived
from MCO taxes imposed by this bill would be deposited.
Requires the moneys in the fund to be allocated as follows:
a) $230 million transferred annually from the
Health and Human Services Special Fund to the
Developmental Disabilities Fund created by this bill,
to be used upon appropriation by the Legislature, to
do both of the following:
i. Increase the funding provided to a
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regional center for the regional center's
operating budget by up to 10% above the levels in
effect on the effective date of this bill; and,
ii. Increase all rates paid to service
providers for providing services to
developmentally disabled individuals by up to 10%
above the levels in effect on the effective date
of this bill.
b) Continuously appropriates to DHCS for the
purpose of funding the nonfederal share of Medi-Cal
managed care rates.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1)Author's statement. According to the author, this
comprehensive piece of legislation directly addresses the
shortage of funding for California's most vulnerable
communities. The author states this legislation guarantees
funding to improve quality and expand access to health care
for those on Medi-Cal, as well as restores funding for our
developmentally disabled community, and clearly demonstrates
California's commitment to help those that need it most,
including seniors, children, families, and individuals with
special needs. This bill would increase the cigarette tax by
$2 a pack, and would impose an equivalent increase on
e-cigarette products, which is preliminarily estimated to
generate nearly $1.3 billion annually. The revenue would go
towards increasing Medi-Cal reimbursement rates to help
improve access to quality providers for Medi-Cal recipients,
and to ensure a robust tobacco prevention program by providing
increased funding for existing tobacco-funded programs
including law enforcement and smoking prevention efforts. In
addition, the legislation also would enact the Governor's most
recent proposed tax on MCO and allocates the funding directly
to Med-Cal managed care rates and to increase rates to
providers of services to individuals served by the
developmental disabilities system and regional center
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operations budgets by up to 10%. The author concludes that
this bill is a win-win for Californians as it will not only
generate much needed revenue for health care and developmental
services, but it will also help reduce smoking rates and deter
teenagers from getting hooked on a deadly habit. The revenue
generated by enacting this bill will help provide care for the
most underserved and neediest communities in California.
2)Cigarette and tobacco products tax law. Federal law imposes a
tax of $1.01 per pack of 20 cigarettes with the majority of
the funds being used to fund children's health programs, under
federal law. Since 1998, the Legislature and voters have
adopted three tobacco tax measures:
a) On the November 1988 ballot, California voters
approved Proposition 99, which imposed a surtax of 25
cents per package of 20 cigarettes, and created an
equivalent tax on tobacco products. Proceeds from the
taxes fund health education, disease research,
hospital care, fire prevention, and environmental
conservation.
b) On November 3, 1998, California voters
approved Proposition 10, which imposed an additional
surtax of 50 cents per package of 20 cigarettes, and
created a proportionately larger increase in the tax
on tobacco products. The revenues are used to fund
early childhood development programs, called "First
5."
c) AB 478 (Friedman, Chapter 660, Statutes of
1993) added an excise tax of 2 cents per packet of 20
cigarettes for breast cancer research and early
detection services.
Current state taxes and surtaxes are allocated in the
following manner:
a) 10 cents to the state General Fund.
SBX2 14 (Hernandez) Page 10 of ?
b) 25 cents to the Cigarette and Tobacco Products
Surtax Fund (Proposition 99, 1988).
c) 2 cents to the Breast Cancer Fund.
d) 50 cents to the California Children and
Families Trust Fund (Proposition 10, 1998).
In November 1998, state attorney generals and tobacco
companies entered into the Master Settlement Agreement,
whereby, tobacco companies, agreed to change the way tobacco
products were marketed and agreed to pay, in perpetuity,
various annual payments to compensate for medical costs for
caring for persons with smoking-related illnesses. In 2012,
California received a Master Settlement Payment of around
$735.7 million, which adds an additional 50 cents tax per
pack.
Current law provides that increasing the cigarette tax
triggers an automatic tobacco products tax increase.
Specifically, a provision of Proposition 99 requires the BOE
to annually determine the tobacco products tax rate at a rate
equivalent to the combined rate of all taxes imposed on
cigarettes. Additionally, because the cigarette tax increase
and indirect tobacco products tax will be included in the
total sales price, the bill will increased sales tax revenues.
A preliminary estimate from LAO of the revenue raised by the
tobacco excise tax and e-cigarettes provisions for this bill
is $1.3 billion, with $1.2 billion coming from cigarettes and
tobacco products and $1 million from e-cigarettes.
1)The Lanterman Act. The Lanterman Developmental Disabilities
Services Act establishes an entitlement to services and
supports for Californians with developmental disabilities,
defined as a disability originating before the age of 18, that
can be expected to continue, indefinitely, and constitutes a
substantial disability. Approximately 290,000 children and
adults with developmental disabilities are served in
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community-based programs and supported by state- and federally
funded services that are coordinated by 21 local, nonprofit
regional centers. An additional 1,100 individuals are served
in four state-run institutions, including three Developmental
Centers. Approximately 45,000 agencies provide services in
more than 150 service category types including residential
care, day programs, behavioral therapies, independent and
supported living, supported employment, respite,
transportation and many others.
Since 2009, the state has reduced costs to community-based
developmental services programs by more than $1 billion (GF)
including restrictions on payments for specific services, caps
on costs provided for other services, across-the-board
reductions, mandated holidays and other cuts. Prior to the
2009 cost-containment measures, the state had frozen rates to
providers in order to contain costs.
Regional centers also have struggled with heavy caseloads and
low salary reimbursements during this time period. Caseloads
are statutorily mandated to be no higher than 1:62 for most
consumers or 1:45 for consumers who have moved out of a
developmental center in the previous 12 months, and 1:66 for
consumers not receiving federally reimbursed waiver services
and who had not recently moved from a developmental center.
The Association of Regional Center Agencies reports one
regional center in 2014 reported a ratio of 1:136 and in 2014,
all 21 regional centers reported being out of federal
compliance in at least one category. A national survey of
states found that 32 of 37 states had caseload ratios below
1:59, and more than half of the 37 had caseloads below 1:39.
2)In-Home Supportive Services. The IHSS program provides
personal care services to approximately 420,000 qualified
low-income individuals who are aged (over 65), blind, or who
have disabilities. Services include tasks like feeding,
bathing, bowel and bladder care, meal preparation and
clean-up, laundry, and paramedical care. These services
frequently help program recipients to avoid or delay placement
in institutional care settings. The average annual cost of
services per IHSS client is estimated to be around $14,217
($1,185 per client per month) for 2015-16.
In December 2011, as a part of the Governor's budget trigger
package that took effect as a result of lower than anticipated
SBX2 14 (Hernandez) Page 12 of ?
state revenues, a 20% across-the-board reduction of IHSS hours
was imposed. A federal district court prevented the reduction
from taking effect, pending the outcome of litigation. In
March 2013, the Administration and plaintiffs (labor unions
and disability rights advocates) announced a settlement
agreement from an 8% across-the-board reduction to authorized
service hours, effective July 1, 2013, and a 7%
across-the-board reduction to service hours July 1, 2014. The
settlement agreement includes a provision to "trigger off" the
ongoing reduction of up to 7%-in whole or in part-as a result
of enhanced federal funding received pursuant to an
"assessment" (a provider tax under Medicaid law) on home
health care services, including IHSS.
DHCS was required by statute to submit a proposal for its
implementation to the federal government by October 2014, but
the Administration instead submitted a letter to the
Legislature in August 2014, indicating that it had worked in
good-faith to develop a federally-compliant proposal but,
given the new federal guidance on health care related taxes,
it was unable to meet the deadline. The letter indicated that
the Administration would work with all parties on viable
legislation early in the 2015-16 session. Instead, the
Governor's budget included a proposal to create a new MCO tax,
which is projected to raise for 2015-16 an additional $215.6
million GF in revenues (to be matched with federal funds) to
fully restore the 7% reduction in IHSS hours.
3)MCO tax. California's existing MCO tax imposes a 3.9% tax on
the total revenue received by MCOs through their Medi-Cal
managed care plans. This existing tax holds the MCOs harmless
and generates funding to offset other GF costs. According to
the Senate Budget Subcommittee on Health and Human Services,
for 2015-16, the current MCO tax is projected to generate
$1.13 billion in non-federal funding for the Medi-Cal program.
The revenues are deposited into the Children's Health and
Human Services Special Fund. Half of the MCO tax revenues are
used to draw down federal Medi-Cal funds and then used to pay
back Medi-Cal managed care plans in order to "make them
whole." The other half of these funds is used to offset GF
expenditures for Medi-Cal managed care rates for children,
seniors and persons with disabilities, and dual eligibles.
California's current MCO tax sunsets on July 1, 2016.
In a July 2014 letter to State Medicaid Directors, the federal
SBX2 14 (Hernandez) Page 13 of ?
Centers for Medicare and Medicaid Services (CMS) indicates
that taxes structured like California's current MCO tax will
likely be considered health care-related taxes that would have
to meet Medicaid requirements. This means the tax must:
a) Be applied to all providers in a class
(meaning the tax must be applied to all MCOs and not
just MCOs providing services to Medi-Cal
beneficiaries, unless a waiver is obtained);
b) Applied at the same rate for all payers of the
tax (unless a federal waiver is obtained); and,
c) Cannot directly or indirectly guarantee that
providers receive their tax back.
The federal deadline for states to reform tax structures that
are out of compliance is the end of the states' legislative
session, which is August 31, 2016 for California.
The Administration revised its MCO proposal in early September
2015. This revised tax continues to use enrollment ranges with
tax tiers for enrollment in each range, but it taxes Medi-Cal
enrollees at a higher amount than non-Medi-Cal enrollees. The
revised proposal continues to generate roughly the same amount
of revenue ($1.3 billion GF net to the state), but reduces the
net impact to managed care plans from the Administration's
prior proposal of $669 million, to $317 million. In addition,
the revised proposal reduces the net impact to every plan,
significantly reduces tax rates for non-Medi-Cal lives and
reduces the differential between tiers for non-Medi-Cal
enrollees from the previous proposal, particularly for those
middle tiers that had the burden of the highest rates under
the Administration's prior proposal, as shown in the chart
below:
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|Enrollmen|Enrollment | Tax | New Tax | New Tax | |
| t in | in Top of | Amount |Proposal |Proposal - | |
| Bottom | Tax Tier | Under | - |Non-Medi-Ca| |
| of Tax | Range | Original |Medi-Cal | l | |
| Tier | | Proposal | | | |
| Range | | | | | |
|---------+-----------+----------+---------+-----------+------|
| 0 | 125,000 | $3.50 | $22.00 | $3.00 | |
|---------+-----------+----------+---------+-----------+------|
| 125,001 | 275,000 | $25.35 | $22.00 | $5.80 | |
SBX2 14 (Hernandez) Page 14 of ?
|---------+-----------+----------+---------+-----------+------|
| 275,001 | 1,250,000 | $13.75 | $17.50 | $5.80 | |
|---------+-----------+----------+---------+-----------+------|
|1,250,001| 2,500,000 | $5.50 | $7.00 | $0.75 | |
| | | | | | |
|---------+-----------+----------+---------+-----------+------|
|2,500,001| N/A | $0.75 | $1.50 | $0.75 | |
| | | | | | |
|---------+-----------+----------+---------+-----------+------|
| | | | | | |
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1)Policy comment. This bill defines an electronic cigarette as
"a device that is intended to be used to deliver aerosolized
or vaporized nicotine" but does not address other vaporized
liquids that are marketed as non-nicotine, which can also be
used in an electronic cigarette. Related e-cigarette bills
from this legislative session have included language to
specify that e-cigarettes can deliver nicotine and
non-nicotine solutions. To maintain consistency, the author
may wish to consider the following technical amendments:
(b) "Electronic cigarettes" means any device that is intended
to be used to deliver aerosolized or vaporized nicotine
nicotine or other vaporized liquids to the person inhaling
from the device, including, but not limited to, an
e-cigarette, e-cigar, e-pipe, vape pen, or e-hookah.
Electronic cigarettes include any component, part, or
accessory of that a device that is used during the operation
of the device, whether sold separately or as a package with
that device, if it is intended to be used to deliver
aerosolized or vaporized nicotine nicotine or other vaporized
liquids to the person using the device. Electronic cigarettes
also include any liquid or substance containing nicotine
intended to be inhaled during the use of the device.
Electronic cigarettes do not include any battery, battery
charger, carrying case, or other accessory not used in the
operation of the device if sold separately. E-cigarettes
Electronic cigarettes shall not include any product that has
been approved by the United States Food and Drug
Administration for sale as a tobacco cessation product or for
other therapeutic purposes where that product is marketed and
sold solely for such an approved purpose.
SUPPORT AND OPPOSITION :
Support: None received.
SBX2 14 (Hernandez) Page 15 of ?
Oppose: None received.
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