Sacramento, California - Governor Edmund G. Brown Jr. today announced that he has signed the following bipartisan managed care organization (MCO) financing legislation passed by both houses of the Legislature yesterday:

• AB 133 by the Committee on Budget – Budget Act of 2015.

• ABX2 1 by Assemblymember Tony Thurmond (D-Richmond) – Developmental services: Medi-Cal: funding.

• SBX2 2 by Senator Ed Hernandez (D-West Covina) – Medi-Cal: managed care organization tax.

The legislation will result in a net tax cut, maintain more than $1 billion in critical federal funds, reduce debt by more than $400 million and direct approximately $300 million in new funding to help those with developmental disabilities. 

Since 2005, the state’s MCO financing structure has generated revenue from Medi-Cal managed care plans. This revenue has been matched by the federal government and used to pay for the Medi-Cal program, including increasing payments to Medi-Cal providers. However, in 2014, the federal government released guidance indicating that this structure would be impermissible under federal Medicaid regulations starting in 2016-17 – a shift that would result in the loss of more than $1 billion in federal funding.

To prevent the loss of federal funds and the resulting cuts to health care services in California, Governor Brown called a special session and the Administration has been working closely with the Legislature and other stakeholders on a solution.

The legislative package signed today meets the federal government’s new rules, thereby maintaining federal funds critical to funding health care services. The package also includes a $300 million increase in state funds to boost services for people with developmental disabilities and provides more than $400 million in debt relief by prefunding retiree health benefits and repaying transportation-related loans.

The legislation restructures the taxes assessed on the health insurance industry and is projected to reduce overall tax liability for the industry. In addition to being approved by more than two-thirds of the Legislature, this bipartisan legislation was supported by dozens of organizations including the California Association of Health Plans, California Chamber of Commerce, California Association of Health Facilities, Local Health Plans of California, California Hospital Association, Health Access California, Western Center on Law and Poverty and the Lanterman Coalition, including the Arc of California and the Association of Regional Center Agencies.