BILL ANALYSIS Ó
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CONFERENCE REPORT NO. 1
Bill No: SBX2 2
Author: Hernandez (D), et al.
Proposed: 2/22/16
Vote: 27
CONFERENCE COMMITTEE: 6-4, 2/22/16
AYES: Senator Mitchell, Senator Leno, Senator Hernandez,
Assemblymember Bonilla, Assemblymember Santiago,
Assemblymember Bonta
NOES: Senator Nielsen, Senator Anderson, Assemblymember
Gallagher, Assemblymember Patterson
SUBJECT: Medi-Cal: managed care organization provider tax
SOURCE: Author
DIGEST: This bill imposes a three-year managed care
organization provider tax (MCO tax) on health plans, with
different taxing tiers and based on enrollment assessed during a
base year period of October 1, 2014 through September 30, 2015.
Continuously appropriates funds from the MCO tax for purposes of
funding the nonfederal share of Medi-Cal managed care rates.
Reduces the amount of the Corporate or Gross Premium taxes that
specified health plans and insurers are required to pay for the
three years of the MCO tax assessment. Sunsets these provisions
on June 30, 2020.
Conference Committee Amendments delete the prior version of the
bill and insert the current language.
ANALYSIS:
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Existing law:
1)Establishes the Medi-Cal program, administered by the
Department of Health Care Services (DHCS), under which health
care services are provided to approximately 13 million
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 MCOs.
2)Imposes a 3.9 % tax on the total revenue of Medi-Cal MCOs
until July 1, 2016. The Department of Managed Health Care
(DMHC) licenses and regulates health care service plans
(health plans) and the California Department of Insurance
(CDI), regulates insurers, including health insurers.
Depending upon the structure, a health plan or insurer will
pay either the Corporation Tax Law, which applies a tax rate
of 8.84% on the apportioned net income of a corporation with a
taxable nexus to California, or a minimum franchise tax of
$800, whichever is more; or a Gross Premiums Tax (GPT) at a
rate of 2.35% of gross premium income, in lieu of all other
taxes, except for real estate taxes, motor vehicle license
fees, and retaliatory exactions.
This bill:
1) Establishes a new MCO tax, to be administered by DHCS, for
three fiscal years (FYs) 2016-17, 2017-18, and 2018-19.
2) Assesses the MCO tax on health plans and entities contracted
with DHCS to provide Medi-Cal services (county organized
health services are contracted to provide Medi-Cal services
but are not all licensed as health plans). Excludes from the
MCO tax a health plan that provides only specialized or
discount services, international plans, as specified, and a
plan owned and operated by a nonprofit hospital or health
system or multiple hospitals or health systems, headquartered
in Sacramento or San Diego County, as specified.
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3) Defines as the base year for purposes of assessing the MCO
tax the 12-month period of October 1, 2014 through September
30, 2015.
4) Defines for purposes of assessing the MCO tax, countable
enrollee as an individual enrolled in a health plan, as
defined, during a month of the base year according to the
base data source. Countable enrollee does not include an
individual enrolled in a Medicare plan, a plan-to-plan
enrollee, as defined, or an individual enrolled in a Federal
Employee Health Plan (FEHP), to the extent the imposition of
the tax under this bill is preempted, as specified.
5) Establishes applicable taxing tiers and per enrollee tax
amounts for FYs 2016-17, 2017-18, and 2018-19 for health
plans and an alternate health care service plan (AHCSP),
defined as, a non-profit health plan with at least four
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 specific
geographic regions in which it is licensed.
6) Prohibits DHCS from collecting the MCO tax until DHCS
receives approval from federal Centers for Medicare and
Medicaid Services (CMS) that this is a permissible health
care-related tax, as specified in federal regulations.
Requires, on October 1, 2016, or the date DHCS receives such
federal approval from CMS, whichever is later, certain
activities to occur, such as certification by DHCS that
approval was obtained and notification to the affected plans
of the approval, payment schedule and other details related
to the payment of the tax.
7) Requires DHCS to determine for each health plan, other than
excluded plans, using the base data source all of the
following:
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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 FEHP for the
base year; and,
f) Total other cumulative enrollment for the base year
that is not otherwise counted in b) through e), inclusive.
8) Requires, 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, and that occurs at any time during which
this MCO tax is operative, the resultant health plan or
similar entity to be responsible for paying the full tax
amount provided in this bill that would have been the
responsibility of the health plan to which that full tax
amount was assessed, upon the effective date of any
transaction. Specifies that if a transaction transfers
responsibility for some of a health plan's countable
enrollees but not all countable enrollees, the full tax
amount as provided in this bill remains the responsibility of
that health plan to which that full tax amount was assessed.
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9) Permits DHCS to modify or make adjustments to any
methodology, tax amount, taxing tier, or other similar
provision to the extent necessary to meet the requirements of
federal law or regulation, obtain federal approval, or to
ensure federal financial participation is available provided
the modification or adjustment does not otherwise conflict
with this bill's purposes.
10) Requires any modification or adjustment that would
result in more than the following aggregate tax amounts for
the other enrollees and AHCSP enrollees combined, to be
considered in conflict with the purposes of this bill:
a) $266 million in the 2016-17 FY.
b) $287 million in the 2017-18 FY.
c) $309 million in the 2018-19 FY.
11) Authorizes DHCS in implementing any modification or
adjustment, to only make an adjustment that would result in
lowering the amounts in #10) above. States that this does
not limit DHCS' authority to make an adjustment that does not
impact the amount in #10) above.
12) Establishes the Health and Human Services Fund
(fund) in the State Treasury, and requires all revenues, less
refunds, derived from the MCO tax to be deposited to the
credit of the fund. Requires interest and dividends to be
retained in the fund. Requires a continuous appropriation,
without regard to fiscal year, for purposes of 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.
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13) Requires DHCS to provide an annual report to all
health plans accounting for the funds deposited in and
expended from the fund in a time and manner as deemed
appropriate by the director. Requires the report to identify
the MCO tax imposed on each health plan, and to provide an
itemized accounting of expenditures.
14) Permits DHCS to implement this bill by means of
provider bulletins, all-plan letters, or other similar
instructions, without taking regulatory action. Requires
DHCS to notify the Joint Legislative Budget Committee and 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 approval from CMS has been obtained, and also in the
event of a modification or adjustment.
15) Makes the MCO tax provisions operative on July 1,
2016, and inoperative on July 1, 2019. Repeals the MCO
provisions on June 30, 2020. Requires, notwithstanding this
provision, the MCO tax and any applicable interest and
penalties imposed under this bill to continue to be due and
payable until the tax and any applicable interest and
penalties are fully paid.
16) Excludes the income of a health plan subject to the
MCO tax, as defined, for Corporation Tax purposes.
Specifically, this bill excludes the health plan's income
properly accrued with respect to enrollment or services
occurring between July 1, 2016 and June 30, 2019. To be
eligible for the exclusion, the revenue must be associated
with the plan's operation, and subject to current
requirements for the plan to report to DMHC, as specified,
including:
a) Premiums (commercial);
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b) Co-payments, continuation of benefits, Subrogation;
c) Medicaid;
d) Point-of-Service premiums;
e) Risk pool revenue;
f) Capitation payments;
g) Medicare;
h) Fee-for-service;
i) Interest, and,
j) Aggregate write-ins for other revenues, including
capital gains and other investment income.
17) Excludes health plans whose entire income is
excluded by this bill from the $800 minimum franchise tax.
18) Requires DMHC to provide specified information to
the Franchise Tax Board (FTB) regarding each plan subject to
the MCO tax by December 1, 2016, and annually thereafter.
Allows FTB to prescribe rules, guidelines, or procedures to
implement this bill, which are exempt from the Administrative
Procedures Act.
19) States the intent of the Legislature that FTB Legal
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Ruling 2006-01 apply to apportionment factors attributable to
income excluded by this bill.
20) Sets a GPT rate of zero on premiums received for the
provision of health insurance, as defined. Limits the zero
rate only to insurers that provide health insurance that has
a corporate affiliate that is a health plan, meaning the
insurer is directly or indirectly, controlled by, under
common control with, or controls a health plan, and, that is:
a) Licensed by DMHC, or who contracts with DHCS to
provide Medi-Cal services,
b) Had at least one enrollee enrolled in the health plan
in the base year, not including Medicare plan enrollees,
individuals who receive health care services under
subcontract with another plan, or enrollees under the
Federal Employees Health Benefits Act, and,
c) Subject to the MCO tax.
21) Directs the Insurance Commissioner not to consider
the zero GPT rate as part of any determination to impose or
enforce a retaliatory insurance tax.
22) Requires the provisions of this bill to cease to be
operative for each taxable year beginning on or after the
date the DHCS director, in consultation with the Director of
Finance, determines the taxes have not met the intent for
purposes of providing funding for health care and prevention
or the state does not have federal approval necessary for
receipt of federal financial participation; or on or after
the effective date of a final judicial determination made by
any court of appellate jurisdiction that the provisions of
this bill cannot be implemented. Requires the director to
post notification to this effect.
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23) Provides that this bill's changes to the GPT and
Corporation Tax become effective and operative on the latter
of July 1, 2016, or the effective date certified in writing
by the DHCS director of federal approval of the MCO tax. The
director must post certification of federal approval on
DHCS's website, and send notice to the Secretary of State,
Secretary of the Senate, the Chief Clerk of the Assembly,
Legislative Counsel, the State Board of Equalization, CDI,
and FTB's Executive Officer.
24) Renders the tax provisions in effect until December
1, 2019, and repeals them on June 30, 2020.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: No
SUPPORT: (Verified2/24/16)
Anthem
Association of Regional Center Agencies
Bay Area Council
Blue Shield of California
Brea Chamber of Commerce
California Association of Health Facilities Developmental
Services Conference
California Association of Health Plans
California Chamber of Commerce
California Disability Services Association
California Hospital Association
California Respite Association
California State Association of Counties
California State Council on Developmental Disabilities
California Supported Living Network
Cal-TASH
Community Regional Medical Center
Developmental Services Network
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Disability Rights California
Easter Seals Disability Services
Eastern Plumas Health Care
Educate.Advocate.
Family Resource Centers Network of California
Health Access California
Health Net
IDA California
Kern Valley Healthcare District
Lanterman Coalition
Mayers Memorial Hospital District
Modoc Medical Center
Local Health Plans of California
Los Angeles Area Chamber of Commerce
North Orange County Chamber
Orchard Hospital
People First of California
Rancho Cordova Chamber of Commerce
ResCoalition
Seneca Healthcare District
Service Employees International Union
SoCal Association of People Supporting Employment First
Southwest California Legislative Council
Tahoe Forest Hospital District
The Alliance
The Arc California
United Cerebral Palsy California Collaboration
Western Center on Law & Poverty
OPPOSITION: (Verified2/24/16)
None received
Prepared by: Teri Boughton / P.H. & D.S. /
2/25/16 14:50:47
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