BILL ANALYSIS Ó SB 2 X2 Page 1 PROPOSED CONFERENCE REPORT NO. 1 - February 22, 2016 SB 2 X2 (Hernandez) As Amended September 4, 2015 2/3 vote ------------------------------------------------------------------- |SENATE: | |(September 10, |ASSEMBLY: | |(September 9, | | | |2015) | | |2015) | | | | | | | | | | | | | | | ------------------------------------------------------------------- (vote not relevant) (vote not relevant) SENATE CONFERENCE VOTE: 3-2 ASSEMBLY CONFERENCE VOTE: 3-2 ------------------------------------------------------------------- |Ayes:|Ed Hernandez, Leno, |Ayes:|Bonta, Bonilla, Santiago | | |Mitchell | | | | | | | | |-----+--------------------------+-----+----------------------------| |Noes:|Anderson, Nielsen |Noes:|Gallagher, Patterson | | | | | | | | | | | | | | | | SB 2 X2 Page 2 | | | | | ------------------------------------------------------------------- Original Committee Reference: Not relevant SUMMARY: Reforms the existing managed care organization (MCO) provider tax that is only paid by Medi-Cal managed care plans (MCPs) and replaces it with a tax that would be assessed on health care service plans licensed by the Department of Managed Health Care (DMHC), and/or managed care plans contracted with the Department of Health Care Services (DHCS) to provide services to Medi-Cal beneficiaries, unless exempted, from July 1, 2016 to July 1, 2019 Specifically, the conference committee amendments: 1)Specify it is the intent of the Legislature that DHCS implement an MCO provider tax, effective July 1, 2016, to provide ongoing funding for health care and prevention, and minimize any need for new reductions to the program, and meet all of the following goals: a) generate an amount of nonfederal funds for the Medi-Cal program, equivalent to the sales tax currently imposed on MCPs; and, b) comply with federal Medicaid requirements, as specified. 2)Define various terms, including the following: a) Alternate Health Care Service Plan (AHCSP) is a nonprofit health care service plan with at least 4 million enrollees statewide, that owns or operates pharmacies, and provides professional medical services to enrollees in specific geographic regions through an exclusive contract with a single medical group in each geographic region in which it is licensed; SB 2 X2 Page 3 b) AHCSP enrollee is an individual enrolled in an AHCSP, who is not a Medi-Cal beneficiary; c) Base year means the 12-month period of October 1, 2014 through September 30, 2015; d) Base data source means the quarterly financial statement filings submitted by health plans to DMHC retrieved by DHCS as of January 1, 2016, and supplemented by, as necessary, Medi-Cal enrollment data for the base year as maintained by DHCS and retrieved as of January 1, 2016: e) Countable enrollee means an individual enrolled in a health plan, during a month of the base year according to the base data source. Excludes from this definition an individual enrolled in a Medicare plan, a plan-to plan enrollee, or an individual enrolled in a health plan pursuant to the Federal Employees Health Benefits Act of 1959; f) Exclude plan means a prepaid health plan operating under the laws of Mexico or a health plan owned and operated by a 501(c)(3) hospitals or health systems if that health plan has both a substantial amount of its enrollment in and is headquartered in either the County of Sacramento or San Diego; g) Health care service plan or health plan is a health care service plan, other than a plan that provides only specialized or discount services, that is licensed by DMHC under the Knox-Keene Health Care Service Plan Act of 1975 or a managed care plan contracted with DHCS to provide Medi-Cal services; SB 2 X2 Page 4 h) Medi-Cal enrollee is an individual enrolled in a health plan who is a Medi-Cal beneficiary for whom DHCS directly pays the health plan in a capitated payment; i) Other enrollee means an individual enrolled in a health plan who is not a Medi-Cal beneficiary or an AHCSP enrollee; and, j) Plan to plan enrollee means an individual who receives his or her health care services through a health plan pursuant to a subcontract from another health plan. aa) Impose a MCO provider tax on each health plan, unless excluded, for the following fiscal years (FY): a) 2016-17; b) 2017-18; and, 2018-19. 3)Specify the following Medi-Cal taxing tiers: -------------------------------------------- |Enrollees |2016-17 |2017-18|2018-19| | | | | | |-------------------+--------+-------+-------| | 0 to 2,000,000 | $40.00| $42.50| $45.00| |-------------------+--------+-------+-------| | 2,000,001 to | $19.00| $20.25| $21.00| | 4,000,000 | | | | |-------------------+--------+-------+-------| | Over 4,000,000 | $1.00| $1.00| $1.00| | | | | | | | | | | -------------------------------------------- SB 2 X2 Page 5 4)Specify the following other taxing tiers: -------------------------------------------- |Enrollees |2016-17 |2017-18|2018-19| | | | | | |-------------------+--------+-------+-------| | 0 to 4,000,000 | $7.50| $8.00| $8.50| |-------------------+--------+-------+-------| | 4,000,001 to | $2.50| $3.00| $3.50| | 8,000,000 | | | | |-------------------+--------+-------+-------| | Over 8,000,000 | $1.00| $1.00| $1.00| | | | | | | | | | | -------------------------------------------- 5)Establish the following taxing tier for AHCSP (Kaiser): -------------------------------------------- |Enrollees | 2016-17|2017-18|2018-19| | | | | | |-------------------+--------+-------+-------| | 0 to 8,000,000 | $2.00| $2.25| $2.50| | | | | | | | | | | -------------------------------------------- 6)Establish the Health and Human Services Special Fund (HHSS Fund) where all revenues, less refunds derived from the taxes specified in this bill, would be deposited to the credit of the HHSS Fund. Requires that any interest and dividends SB 2 X2 Page 6 earned on moneys to be retained in the HHSS Fund for funding the nonfederal share of Medi-Cal managed care rates for health care services furnished to children, adults, seniors and persons with disabilities, and persons dually eligible for Medi-Cal and Medicare. 7)Require DHCS to provide an annual report to all health plans accounting for the funds deposited in and expended from the HHSS Fund, as determined by the DHCS Director. Require the report to identify the taxes imposed on each health plan and provide an itemized accounting of expenditures from the HHSS Fund. 8)Require DHCS to determine for each health plan using the base data source all of the following: a) total cumulative enrollment for the base year; b) total Medicare cumulative enrollment for the base year; c) total Medi-Cal cumulative enrollment for the base year; d) total plan-to-plan cumulative enrollment for the base year; e) total cumulative enrollment through the Federal Employees Health Benefits Act of 1959; and, f) total cumulative enrollment for the base year that is not otherwise counted in b) to e). Authorizes the DHCS Director to correct any identified material or significant errors in the data. Specifies that the DHCS Director's determination on whether to exercise discretion and any determination made by the DHCS Director is not subject to judicial review, as specified. Authorizes a health plan to bring a writ of mandate to rectify an abuse of discretion relating to the data specified above. 9)Require DHCS to compute the annual tax for each health plan subject to the tax, as specified. 10)Require DHCS to collect the annual tax in four installments and to determine the amount due for each installment in the SB 2 X2 Page 7 state FY by dividing the annual tax for that state FY by four. 11)Prohibit DHCS from collecting the tax until it has received approval from the federal Centers for Medicare and Medicaid Services (CMS) that the tax is a permissible health care-related tax and is eligible for federal financial participation (FFP). 12)Require, on October 1, 2016, or the date DHCS receives the federal approval, whichever is later, the following to commence: a) The DHCS Director to certify in writing that the federal approval was received and within five business days, the DHCS to post the certification on its Internet Website and send a copy of the certification to the Legislature and Legislative Counsel; b) By October 14, 2016 or within 10 business days following receipt of the notice of federal approval, whichever is later, DHCS to send a notice to each health plan subject to the tax, to contain: i) the annual tax due for each FY; and, ii) the dates on which the four installment tax payments are due; c) Requires a health plan to pay the annual tax in installments, based on a schedule developed by DHCS. Requires DHCS to establish the date that each tax payment is due, provided that the first tax payment is due no earlier than 20 days following the date the department sends the notice specified in b) above, and the tax payments to be paid at least one month apart, but no more than one quarter apart; SB 2 X2 Page 8 d) A health plan to pay the taxes that are due, in the amounts and at times set forth in the notice, as specified. The taxes assessed to be deposited in the HHSS Fund; and, e) Interest accrues the day after the date the tax payment is due. Interest will be assessed for any amount that is not paid on the due date at a rate of 10% per annum. Provides that if a tax payment is more than 60 days overdue, a penalty shall be assessed for each month for which tax payment is not received after 60 days. Authorizes the DHCS Director to waive a portion or all of the interest or penalties or both, if the DHCS Director determines that the imposition of the full amount of the tax pursuant to the timelines 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. Conditions a waiver of the interest or penalties on the health plan's agreement to make tax payments on an alternative schedule that takes into account the financial situation of the health plan and the potential impact on the delivery of services to Medi-Cal beneficiaries. 13)Provide that in the event of a merger, acquisition, establishment, or any other similar transaction that results in the transfer of health plan responsibility for all countable enrollees from a health plan to another health plan or similar entity, the resultant health plan shall be responsible for paying the full tax amount upon the effective date of such transaction. If a merger or acquisition results in the transfer of health plan responsibility for only some of a health plan's countable enrollees, the full tax amount shall remain the responsibility of the health plan to which that full tax amount was assessed. SB 2 X2 Page 9 14)Authorize DHCS to modify or adjust the methodology, tax amount, taxing tier or other similar provision to the extent necessary to meet the requirements of federal law or regulations, obtain federal approval, or to ensure FFP is available, as specified. Specifies that any modification or adjustment that would be higher than the following aggregate amounts for the other enrollees and AHCSP enrollees, combined, would be in conflict with this measure: a) $266,000,000 in the 2016-17 FY; b) $287,000,000 in the 2017-18 FY; and, c) $309,000,000 in the 2018-19 FY. 15)Authorize DHCS to make an adjustment that would result in lowering the amounts in 15) above. States that nothing would limit the authority of DHCS to make an adjustment that does not impact the amounts in 15) above. 16)Require, if DHCS identifies that a modification or adjustment may be necessary under 15) above, to consult with affected health plans, to the extent practicable, to implement that modification or adjustment. Requires DHCS to notify affected health plans, and the Legislature within 10 business days of the modification or adjustment. 17)Require DHCS to request approval from CMS to implement this bill. Authorize DHCS to request a waiver of the broad-based and uniformity requirements, as specified. SB 2 X2 Page 10 18)Authorize DHCS to implement the provisions of this bill outside of the administrative rulemaking process and to implement this measure pursuant to provider bulletins, all plan letters, or other similar instructions. Require DHCS to notify specified committees of the Legislature within 10 business days of such action. 19)Establish a the gross premiums tax (GPT) rate of 0% for premiums received for the provision of health insurance on or after July 1, 2016, and on or before June 30, 2019. Limits the application of this GPT rate to premiums received by an insurer that provides health insurance and has a corporate affiliate, which is either a "health care service plan" or "health plan" that meets the following requirements: a) Is licensed by DMHC or is a MCP; b) Has had at least one enrollee enrolled in the health plan in the base year, as defined, not including individuals who are enrolled in a Medicare plan, who receive health care services through a health plan pursuant to a subcontract from another health plan or who are enrollees through the Federal Employees Health Benefits Act of 1959, as specified; and, c) Is subject to the MCO provider tax imposed by this bill. 20)Define an insurer that has a corporate affiliate as a health care service plan or health plan as an "insurer that is, directly or indirectly, controlled by, under common control with, or controls a health care service plan". SB 2 X2 Page 11 21)Prohibit the Insurance Commissioner from considering the reduction of the GPT rate authorized by this bill in any determination to impose or enforce a tax under the relevant retaliatory tax provisions of the Insurance Code and the Revenue and Taxation Code. 22)Exclude from the definition of "gross income," under the Corporation Tax (CT) Law, the qualified health care service plan income of a health plan that is subject to the MCO provider tax. Specifies that the income must properly accrue with respect to enrollment or services that occur on or after July 1, 2016, and on or before June 30, 2019. Defines a "qualified health care service plan" as a health care service plan that: a) is licensed by DMHC or is a MCP, and, b) subject to the MCO provider tax imposed by this bill. 23)Define "qualified health care service plan income" as any of the following revenue associated with the operation of a qualified health care service plan and required to be reported to the DMHC, including the following: a) Premiums (commercial); b) Copayments, coordination of benefits, and subrogation; c) Title XIX Medicaid; d) Point-of-Service Premiums; e) Risk pool revenue; SB 2 X2 Page 12 f) Capitation payments; g) Title XVIII Medicare; h) Fee-for-service (FFS); i) Interest; and, j) Aggregate write-ins for other revenues, including capital gains and other investment income. 24)Require DHCS to submit to the Franchise Tax Board (FTB), no later than December 1, 2016, information regarding every health care service plan that is subject to the tax, as specified. Require the information to include the corporate name, address, and calendar period for which each health care service plan is subject to the MCO provider tax. 25)Exempt from the minimum franchise tax, a qualified health care service plan with no income other than the excluded qualified health care service plan income. 26)Authorize the FTB to prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of the provisions relating to the gross income exclusion for health care service plans. Exempt the FTB from the administrative rulemaking process. 27)Provide Legislative intent that the FTB Legal Ruling 2006-01 of April 28, 2006 regarding the treatment of apportionment factors attributable to income exempt from taxation shall SB 2 X2 Page 13 apply to the apportionment factors attributable to the income of qualified health care service plans excluded by this bill. 28)Sunset this measure on July 1, 2019, and as of June 30, 2020, is repealed. State that any tax and applicable interest and penalties imposed under this bill continues to be due and payable until the tax and any applicable interest and penalties are fully paid. 29)Provide that this bill's reduction in the GPT rate and gross income exclusion shall become operative on the later of July 1, 2016, or the effective date of the federal approval necessary for receipt of federal financial participation in conjunction with the new MCO provider tax. 30)Provide that this bill's tax law modifications shall cease to operate on the first day of the first FY beginning on or after: a) The date the Director of DHCS, in consultation with the Director of the Department of Finance, determines that the taxes have not met their goal of providing funding for health care and prevention, or the state does not have the federal approval necessary for receipt of FFP; or, b) The effective date of a final judicial determination made by a court of appellate jurisdiction that any of the tax law modifications cannot be implemented. SUPPORT (Verified 02/25/2016 12:49 p.m.) SB 2 X2 Page 14 Anthem Blue Cross Autism Health Insurance Project Barton Memorial Hospital Bay Area Council Bear Valley Community Healthcare District Blue Shield of California Brea Chamber California Academy of Family Physicians California Association of Health Facilities California Association of Health Plans California Chamber of Commerce California Chapter of the American College of Physicians Services California Dental Association California Hospital Association California Medical Association California Orthotics and Prosthetics Association California Person Centered Advocacy Partnership California Society of Anesthesiologists California State Association of Counties Catalina Island Medical Center Center for Autism and Related Disorders Coalinga Regional Medical Center Community Medical Centers County Health Executives Association of California Dignity Health District Hospital Leadership Forum Eastern Plumas Health Care East Bay Developmental Disabilities Legislative Coalition Health Access California Health Net Hearing Healthcare Providers California Infant Development Association of California Jewish Home of San Francisco Kaweah Delta Health Care District Lanterman Coalition LA Care Health Plan Local Health Plans of California Los Angeles Area Chamber of Commerce SB 2 X2 Page 15 Mayers Memorial Hospital District Mee Memorial Hospital Modoc Medical Center Molina Healthcare of California Motion Picture and Television Fund Hospital North Orange County Chamber Nurse Family Partnership Orchard Hospital Palomar Health Planned Parenthood Affiliates of California Rancho Cordova Chamber of Commerce Regional Center of the East Bay San Bernardino Mountains Community Hospital District Seneca Healthcare District Sharp HealthCare Sonora Regional Medical Center Southwest California Legislative Council Special Needs Network, Inc. State Council on Developmental Disabilities Sutter Health Tahoe Forest Hospital District Urban Counties of California Western Center on Law and Poverty OPPOSITION (Verified 02/25/2016 12:49 p.m.) None on file. Analysis Prepared by: Rosielyn Pulmano / P.H. & D.S. / (916) 319-2097 FN: 0002624 SB 2 X2 Page 16