administration rejects California's health care tax

SACRAMENTO, Calif. (AP) — The administration says it will not allow California to collect a key health care tax on managed care organizations, a decision that could cost the state $1.2 billion for low-income benefits.

The news does not immediately affect California's budget because the state did not plan to receive any of that money this year or next year. But it could cost California $1.2 billion in the fiscal year that begins July 1, 2021, California Department of Finance spokesman H.D. Palmer said.

“The Administration will continue its ongoing discussions with federal Medicaid officials on this issue,” Palmer said. “Consistent with the federal government’s prior approvals of similar financing waivers, we believe and expect that we can reach an agreement that allows this type of financing to continue.”

The Centers for Medicare and Medicaid Services says it won't allow the tax because it only applies to managed care organizations that receive Medicaid payments. Organizations that don't receive Medicaid payments would not be taxed. That is against federal rules, according to a letter from Calder Lynch, acting deputy administrator and director of the federal Center for Medicare and Medicaid Services.

The tax applies to managed care organizations that manage California's Medicaid plans, the joint state and federal program that provides health benefits for the poor and people with disabilities.

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California uses the money it gets from the taxes to pay its share of Medicaid costs, which then triggers payments from the federal government. It was expected to save the state about $1.2 billion in the 2021-22 budget year.

Gov. Gavin Newsom had planned to use the money to extend a sales tax exemption on diapers and tampons for another 18 months.

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