Confronting a $1.1 billion shortfall in its Medicaid budget, California will soon impose a new tax on health insurance carriers.
According to the law signed by Gov. Jerry Brown on Tuesday, all insurers in the state will pay a tax to finance Medicaid. Previously, only insurers that participated in the state's Medicaid program, Medi-Cal, were subject to such a tax.
The decision comes as the result of pressure from the Obama administration, which insisted that the state generate more of its own revenue to finance its Medicaid program. The administration signaled that it would not continue matching the state dollar-for-dollar unless the state implemented a broader tax aimed at getting more from insurers.
And yet, Brown and his allies are not calling the policy a major tax hike, since they point out that the new tax replaces other taxes levied on insurers' gross premiums. In fact, the industry supposedly will pay $100 million less in taxes a year as a result. It's no surprise that the major insurance trade group in California supported the plan.
"This is a good deal for the state of California," Sen. Ed Hernandez, who authored one of the bills that put the new tax in place, told the AP.
While most in the GOP opposed the bills, Democrats were able to peel off just enough Republicans to get the majority required to pass tax legislation. Two of the 14 Republicans in the state Senate backed the bills, as did 11 of the 28 Republicans in the state assembly.
The legislation also included a $300 million hike in services for the developmentally disabled. The increase in spending will largely be directed at boosting payments to providers for such services.
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