BILL ANALYSIS                                                                                                                                                                                                    Ó




           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        SBX2 2|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                               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:   










                                                                     SBX2 2  
                                                                    Page  2



          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. 









                                                                     SBX2 2  
                                                                    Page  3




          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:








                                                                     SBX2 2  
                                                                    Page  4





              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.










                                                                     SBX2 2  
                                                                    Page  5



          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.









                                                                     SBX2 2  
                                                                    Page  6




          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);









                                                                     SBX2 2  
                                                                    Page  7




              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  








                                                                     SBX2 2  
                                                                    Page  8



             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.








                                                                     SBX2 2  
                                                                    Page  9





          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:   (Verified2/26/16)


          Anthem
          Association of Regional Center Agencies
          Barton Health
          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
          Coalinga Regional Medical Center








                                                                     SBX2 2  
                                                                    Page  10



          Community Regional Medical Center
          Developmental Services Network
          Disability Rights California
          Easter Seals Disability Services
          Eastern Plumas Health Care
          Educate.Advocate.
          Family Resource Centers Network of California
          George L. Mee Memorial Hospital
          Health Access California
          Health Net
          IDA California
          Jewish Home of San Francisco
          Kaweah Delta Health Care District
          Kern Valley Healthcare District
          Lanterman Coalition
          Mayers Memorial Hospital District
          Modoc Medical Center
          Mountains Community Hospital
          Local Health Plans of California
          Los Angeles Area Chamber of Commerce
          Motion Picture & Television Fund
          North Orange County Chamber
          Orchard Hospital
          Palomar Health
          People First of California
          Rancho Cordova Chamber of Commerce
          ResCoalition
          Seneca Healthcare District
          Service Employees International Union
          Sharp HealthCare
          SoCal Association of People Supporting Employment First
          Sonora Regional Medical Center
           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)









                                                                     SBX2 2  
                                                                    Page  11




          None received





          Prepared by:  Teri Boughton / P.H. & D.S. /
          2/26/16 14:07:38


                                   ****  END  ****