MCO Tax Deal Passes Legislature

The California Legislature has handed Gov. Jerry Brown a victory more than a year in the making. On Monday, lawmakers approved a restructured tax on California health insurers to avoid a $1 billion state budget deficit.

Brown first called for a new tax on “managed care organizations,” or MCOs, in January of last year to save $1 billion a year in federal Medi-Cal funds.

The deal that won bipartisan approval Monday is backed by the health insurance industry, which has promised not to pass the tax on to consumers through higher health care premiums. Business and taxpayer groups also signaled they are on board with the legislation.

The MCO tax drew unanimous support from Democrats and even won some Republican votes to reach the required two-thirds supermajority in each chamber. It passed the Senate 28-11, with GOP Sens. Anthony Cannella and Bob Huff voting yes. The Assembly approved the bill by a much wider 61-16 margin, with 11 Republicans voting yes.

“This may be one of the most difficult aye votes I have ever casted,“ said Asm. Brian Jones (R-Santee). “But it didn't have to be.” 

Jones said he’ll take a hit for voting for this tax bill – even though he believes it’s a tax cut.

“This, I believe, represents the best of the Assembly and the best of the Legislature,“ Jones said.

Other Republicans fear health plans could pass costs on to middle-class Californians.

“Will consumers be guaranteed that their rates will not go up? Is there anything written in this bill that will codify the fact that will be no increases to any citizens in the state of California?“ asked Sen. Jeff Stone (R-Riverside). “No!”

Stone added that bill supporters “want a tax increase on every person in a managed care plan to pay for services that frankly could be paid with existing revenues.”

As part of the deal, lawmakers also approved $300 million dollars for programs that aid Californians with developmental disabilities – long a priority for lawmakers in both parties.

The governor issued a statement saying he will sign the bills as soon as they reach his desk.

“Democrats and Republicans came together today to do what’s best for California,” Brown said. “This legislation will save money and help millions of people with health care and disability services.”