Have California lawmakers solved the state’s healthcare budget problems? Yes, or at least for now.
Currently, under the regulations of the Affordable Care Act and through Covered California, which helps people and small businesses navigate the healthcare insurance market, Californians may buy private insurance or may qualify for receiving health insurance through the Medi-Cal program—the state’s health insurance which is aimed at supporting low-income Californians and covers a third of California’s residents through expansion under the Affordable Care Act.
Late last year, there was a $1.1 billion hole in the 2016 healthcare budget, as the state faced a need to replace its managed care organization, or MCO, tax on health insurance plans, which does not truly comply with federal law. The previous plan, which expires this June, requires those managed healthcare insurance plans serving Medi-Cal recipients to pay a separate flat sales tax of 3.9%, which is collected and put in a special fund by the state’s Board of Equalization. This has allowed the state to increase its Medi-Cal budget, which is matched by the federal government, while taxed insurers are later reimbursed. In 2014, the federal government warned California that all managed care plans, including commercial insurers, must be taxed—this would generate more revenue to alleviate the federal government’s funding burden and produce more equity in taxing.
On February 29, after long debate and Governor Brown’s calling of a special legislative session, the California State Legislature passed a new tax plan on healthcare insurance plan providers. On March 1, Governor Brown announced he has signed the legislation, which “will result in a net tax cut.” The new plan preserves about $1.35 billion in revenue for the state government in funding and involves a tiered system of taxation based on the number of enrollees who are either Medi-Cal or non-Medi-Cal patients. Crucial to the plan’s passing was the support of members of both political parties of the legislature—in particular, Republicans who oppose what some have called a “tax hike”—and healthcare insurers—those being taxed. The plan was passed in the House with 61 “yes” votes out of a total of 80 possible votes and in the Senate with 28 votes in favor out of a possible 40. To pass the plan, there was a need for compromise on both sides of the partisan divide in the face of a great sense of pressure and urgency.
Yet, compromise means mutual concessions.
Proponents of the plan have indicated that the new tax plan will not adversely affect Californians. Interest groups and some major healthcare insurance providers like Kaiser Permanente and Blue Shield have demonstrated their support. Meanwhile, healthcare insurers are given greater tax relief with the plan, thus scaling back their tax burden.
Additionally, supporters in the legislature have stated that passing the plan was a sign of collective action among lawmakers that will benefit the whole state. According to Minority Leader Kristin Olsen, via Twitter, “Who benefits from [new] MCO plan? Every Californian! Cutting debt, helping disabled, improving healthcare access, saving CA.” She has stated that “[u]nder the new structure, people’s health insurance rates will not increase from the [new] MCO because health plans are either fully reimbursed with federal funding or receive a net tax benefit through the elimination of other taxes.” To gain the support of Republicans and get passed, the plan needed to involve tax relief for insurers and needed to be tied to measures that provides funding for particular areas; the GOP called for control of great portions of the budget to allocate funds for the developmentally disabled (about $290 million) and restore funding for the In-Home Supportive Services (IHSS) program cut during the budget crisis. Moreover, it called for reimbursement to skilled nursing facilities (about $120 million) and using a portion of the revenue generated from the new tax plan to repay some of California’s debts.
However, opponents suggest that the new healthcare tax plan does actually translate into excessive costs for consumers. Some state that those insurers with smaller portions of Medi-Cal patients will bear a greater burden of the tax because they will not be reimbursed, though they gain tax relief. Furthermore, Republican State Senator Andy Vidak argues that this adds on to already-high taxes Californians must pay and does not address the main issue, which is the state’s “spending-priority problem.” Instead of raising revenue through a tax hike, the state needs to provide and ensure services for those populations in need—such as the disabled—in other ways. Vidak argues that there are major political motivations behind passing the tax, which would benefit insurance companies and hurt consumers with higher premiums.
Without the new healthcare tax plan, about a billion dollars would have been lost, and this would have most likely led to the further cutting of health services throughout the state. Alternatives to the plan would have been tightening the eligibility of services and programs, such as the IHSS. Those with Medi-Cal eligibility may also be eligible for the In-Home Supportive Services (IHSS) Program, which helps pay for services that allow those who are elderly, disabled, or blind to remain safely and preserve some independent life within their own homes. These services include meal preparation, grocery shopping, and personal care services like grooming. It has been estimated to serve about 460,000 Californians. According to a 2013 study done by the Southern Area Consortium of Human Services (SACHS), the IHSS Program provides mostly for the elderly of varying racial/ethnic demographic groups. It was reported that 57% of IHSS recipients indicate a primary language other than English, and there are manuals for the program provided in different languages, including Armenian, Chinese, and Spanish. From these results, it is evident that the program does affect a wide range of the population. Greater reduction in eligibility would not solve any problems in the long-term because those for whom the program provides would be under greater economic strain and would not be able to live independent lives in their own homes.
Another alternative is increasing taxes in other areas. Previously proposed tax increase options have included upping taxes on tobacco, alcoholic beverages, and sweetened beverages. While some of these have been estimated to generate over a billion dollars in revenue, these taxes directly affect consumption—the effects of such taxes has yet to be completely determined in California, while legislators may not be very keen on supporting such taxes.
The plan has yet to be explicitly approved of by the federal government. Furthermore, there is always the question of how beneficial this plan will actually be and what effects, unintended or not, it will actually have. For now, it may seem relatively convincing. Still, there is a need to be more transparent about the details of the plan and what insurance providers might pass onto consumers. The current healthcare system is complex. Funding the current healthcare system and providing for the public is also complex. Providing adequate healthcare and other programs—even good healthcare and programs—and funding them are often difficult because lawmakers must navigate within a constraining system that needs serious reform. They must also be willing to extend a hand across the partisan divide and strike a balance between the budget and social programs. Lawmakers may have patched up the problem, though problems with the healthcare system and budget definitely have not been solved.
Featured image source: Rich Pedroncelli / Associated Press