State debate over health tax leaves $1 billion in limbo.

California lawmakers passed an assisted-suicide bill in September, a long-awaited and controversial policy giving terminally ill patients the right to end their own lives. That law stole the thunder in the Legislature’s extraordinary session on health, an extension beyond the regular legislative session, which Gov. Jerry Brown convened to grapple with far more bureaucratic, less emotional issues.

Among those issues still unresolved: a tax on California’s managed care organizations, a type of health insurance provider (like an HMO). More than half of California’s managed care organizations don’t offer Medi-Cal, subsidized insurance for low-income residents.

Those non-Medi-Cal insurers have historically been off the hook for paying a tax, which the feds then use to reimburse the state of California for subsidizing health insurance, to the tune of $1.1 billion a year.

A $1.1 BILLION HOLE WILL HAVE A CHAIN EFFECT ON EVERYTHING.

That $1.1 billion is poised to vanish, because federal regulators have determined the way that tax has been structured is impermissible, and state lawmakers have so far failed to agree on a new, legally acceptable alternative.

The state has until June to find a solution, before feds stop reimbursements. That leaves $1.1 billion worth of uncertainty in budget negotiations – which means the debate affects all California services, not just Medi-Cal.

“A $1.1 billion hole in the general fund will have a chain reaction effect on everything else,” says State Sen. Bill Monning, D-Carmel.

“The problem is a political one,” he adds. “Our Republican colleagues, as a matter of principle, don’t like to vote for taxes.”

In his proposed $123 billion budget released Jan. 7, Brown proposed a tax structure that would cost insurers with low Medi-Cal enrollment, because they receive less reimbursement from the state, but still have to pay the tax.

Affected insurers in Monterey County include Aetna, Blue Shield and Anthem Blue Cross, all of which are represented by the California Association of Health Plans. 

Association spokesperson Nicole Evans says it's too soon for the association and its respective members to weigh in on the latest proposal as they're still reviewing it, but however the details of the tax work out, insurers' highest priority it getting it to work out at all: "Our commitment is to making the program whole," she says.

The Central California Alliance for Health is the only local managed care organization that offers Medi-Cal, and provides coverage to more than 328,000 people in Monterey, Santa Cruz and Merced counties.

Scott Fortner, chief administrative officer of the Alliance, declined to comment for this story. Through an assistant, he directed questions to Local Health Plans of California, a trade association based in Sacramento, of which the Alliance is a member. They spent more than $85,000 on lobbying in connection to the MCO tax through September of 2015, according to records filed with the California Secretary of State.

Brianna Lierman, CEO of Local Health Plans of California, declined to comment on behalf of the Central California Alliance for Health, but emails this statement on the tax in general: "The [Brown] Administration’s latest proposal is promising. We, along with our commercial plan partners, are coordinating with the Administration to make it work.”

Editor's note: A slightly shorter version of a story appeared in print in the Jan. 21-27 issue of the Weekly.