California Must Change Tax Or Face Losing Billions

California’s Managed Care Organization, or MCO, tax is only assessed on health plans that accept Medi-Cal enrollees. The state taxes the plans, and uses the money to offset General Fund expenses, and the plans are essentially reimbursed by the federal government. Gov. Jerry Brown’s administration estimates the tax will bring in over $1 billion to the state this coming fiscal year. But the feds say California has to make modifications or risk losing billions in federal dollars.

Felix Su is with the Legislative Analyst’s Office. He says a revised MCO tax proposal put forward by Gov. Jerry Brown would spread the tax out among more health plans, which would meet the federal requirements. But he says is a downside.

"There are some potential social costs because mid-sized plans that don’t do much Medi-Cal would see higher taxes," he says. "And there’s the possibility or even the likelihood that some of these plans would pass on at least some of these increase to consumers."

Lawmakers will consider a revised MCO tax during a special legislative session on health financing. The state has until August of 2016 to modify the tax.