Health Insurers Lose Silent Round In Medi-Cal Deal

California taxpayers dodged a bullet yesterday with the passage of a high-stakes bill to help fund Medi-Cal.

Legislative Democrats and nearly a dozen Republicans approved a plan to trade existing taxes for a new tax on insurers to raise more than $1 billion in needed health care funding and preserve federal Medi-Cal matching funds.

At the same time, the health insurance industry was denied a poison pill that could have left $1.5 billion in future annual tax revenues on the table.

As a result of a recent Court of Appeals decision, Myers v. State Board of Equalization, Kaiser, Blue Shield, Anthem Blue Cross, and Health Net will owe approximately $1.5 billion in gross premiums taxes annually. Under the Myers decision these four companies will also owe $10.5 billion in back taxes.

The California Supreme Court sided with the Court Of Appeals in December 2015. It was only then that health insurers stopped stonewalling and came to an agreement on a plan to replace the Medi-Cal funding.

The medical industry, including health insurance companies, spends more than any other industry lobbying in Sacramento. It’s a rare day that health insurers don’t get everything they ask of lawmakers. This time around they had to settle for half a loaf. The legislature extended the Medi-Cal tax to satisfy the feds, increased needed funding for the developmentally disabled, and by swapping tax sources gave health insurers a $100 million net tax benefit. But they did not reverse Myers, which would have been a multi-billion-dollar tax giveaway to the health insurance industry.

The state has been seeking a way to replace the managed care tax for over a year since the feds ruled the current tax does not qualify for federal matching funds. After Myers, the state’s big four insurers no doubt saw the state’s Medi-Cal tax dilemma as their chance to undermine that ruling and squirm out of their tax obligations.

Historically, insurance companies regulated by the Department of Insurance have paid the gross premiums tax, and health plans or HMOs regulated by the Department of Managed Health Care have not. Myers determined that any health plan that insures policyholders against claims, instead of passing that risk on to providers as HMOs traditionally did, is subject to the gross premiums tax regardless of its regulator.

Because Kaiser, Blue Shield of California, Anthem Blue Cross, and Health Net of California receive a substantial share of their annual premiums for insuring enrollees against medical expenses, they should be considered insurers subject to the Constitution’s gross premium tax.

Yesterday’s vote held the line against that tax evasion to keep billions in future revenue available for all the state's needs, from Medi-Cal, to education, to parks.

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