New California health tax plan may increase premiums for privately insured residents

LEGISLATORS THIS WEEK approved a health tax bill meant to continue critical federal funding for the state’s Medicaid program, also known as Medi-Cal. Their approval comes despite warnings from health industry leaders that the tax, as designed, will raise premiums for privately insured Californians.

New federal rules are forcing the state to restructure its managed care organization tax, or MCO tax, which the state collects from health insurance plans that coordinate care for their members. California has been charging Medi-Cal insurance plans at a higher rate than private plans. The state’s newly-designed solution, Senate Bill 125, will lower the tax on Medi-Cal plans and raise the tax on private plans to the same level. If finalized by the governor, and accepted by the federal government, the new plan would shift more of the cost burden onto people who buy private insurance but bring in less revenue overall.