Billions for Medi-Cal at stake with health taxes in CA 2024 election

In summary

The health care industry put a measure on the November ballot that would collect more money for Medi-Cal and block lawmakers from spending it on general government services. Billions of dollars are on the line.

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A two-year cash flow or a long-term investment? In November, it will be up to California voters whether to end billions of dollars in special taxes on Medi-Cal, the state’s health insurance program for low-income residents, or leave the decision to lawmakers who may be tempted to use the money elsewhere.

The budget deal Gov. Gavin Newsom signed Saturday commits roughly $2 billion through 2026 to increase payments to some doctors and health providers who see Medi-Cal patients, encouraging them to accept more low-income patients. low. The deal relies on a special tax paid by health insurance companies.

But there is a catch in the next election and it could undo some of the pay increases that are in the budget. Low-income families with young children are among the people most likely to lose out.

A ballot initiative backed by nearly the entire health care industry seeks to hold Newsom to a promise he made last year to permanently secure tax money for health care instead of letting future lawmakers use it to offset cuts to prisons, parks, roads and other services.

They say Newsom reneged on their agreement when he presented budget plans earlier this year to address the states’ multibillion-dollar deficit. The tax is expected to generate more than $35 billion over the next four years. The budget signed by Newsom puts most of that money in the states’ general spending account.

But if voters pass the ballot initiative in November, they would effectively undo that part of the deal. Under the initiative, Medi-Cal would get more money and a different but larger group of doctors and providers would get higher rate increases than is currently in the budget.

Key backers of the initiatives, which include the California Medical Association and Planned Parenthood Affiliates of California, say voters should decide whether they want to prevent future lawmakers from using money earmarked for Medi-Cal for other services.

The best way to protect our Medi-Cal program and those vulnerable patients is to invest in it, said Jodi Hicks, co-chair of the initiative coalition and president of Planned Parenthood Affiliates of California. Every day that a patient can see a doctor is a good day and we need to invest and make sure that happens for as long as we can.

The money in question comes from a special tax known as the Managed Care Organization, or MCO tax: Health insurers agree to be taxed in order to receive a dollar-for-dollar match from the federal government.

The tax is expected to generate more than $5 billion next year. California has relied on the tax for decades to offset the cost of state general funds for Medi-Cal, which some experts say is dangerous given signals from the federal government that it may stop providing matching funds to the state. Doctors have argued that the money while it lasts should be used to increase provider payments.

Expanded access to Medi-Cal

For the past decade, California lawmakers have steadily restored Medi-Cal services during the Great Recession, added new ones, and expanded eligibility to include all low-income Californians, regardless of citizenship. Today, more than 15 million Californians, more than a third of its residents, are enrolled in Medi-Cal, but many doctors say the expansions in eligibility and benefits have come without commensurate increases in rates. As a result, very few providers accept Medi-Cal patients.

Assembly member Akilah Weber, an obstetrician from La Mesa, said California’s failure to raise rates makes it impossible to address longstanding health disparities among marginalized communities.

It’s good to give people insurance, but if they don’t have a provider to go to, we haven’t done much, Weber said.

Weber, a Democrat, has not endorsed the ballot initiative. But during recent House budget hearings, she criticized Newsom’s representatives for pulling back on earlier promises to raise rates. The budget deal partially restores the rate hike, which Weber said was a step in the right direction.

We need a real show from the state and a commitment that hospitals, doctors and providers were willing to support, Weber said.

Who wins and who loses in the MCO tax

Money from the health care industry tax is a tempting target for groups trying to maintain or expand programs as the state faces a projected two-year deficit of $56 billion. Newsom has proposed raising the tax twice this year to mitigate the cost of Medi-Cals to the states’ general fund.

This deal puts the state on a path to long-term fiscal stability, addressing the current shortfall and strengthening budget sustainability, Newsom said after announcing the budget deal.

Some of the groups slated to receive rate increases through the new budget include community health workers, private practice nurses, adult day care centers and pediatricians, and children with Medi-Cal at risk of automatic disenrollment. If the ballot initiative passes, these groups will not receive money from the tax, which will instead be used to raise wages in other areas.

We found a creative way to help since we had no money this year, said Sen. Caroline Menjivar, chairwoman of the Senate health budget subcommittee.

Menjivar, a Democrat from Van Nuys, has been outspoken about not allowing spending to be dictated by wealthy special interest groups, such as doctors and hospital lobbies, who support the initiative. Many of the smaller groups included in the budget have been trying to get state aid for years, but they don’t have fancy lobbyists, Menjivar said.

One service that would be lost if the initiative passes is aimed at protecting young children from losing health insurance. It gives children under 5 continuous Medi-Cal eligibility, meaning they won’t have to re-enroll each year.

About 80% of children dropped from coverage each year lose insurance because of missing documents, incorrect addresses or other procedural red tape, not because they no longer qualify for Medi-Cal, said Mayra Alvarez, president of The Childrens Partnership, which protect the money. in the state budget.

We are very concerned that there is any proposal that would have the effect of rolling back health care coverage for children, Alvarez said of the ballot initiative. We want to avoid losing even one more child’s coverage.

Proponents of the ballot initiative argue that the situation is not winner vs. loser. Past governors and legislatures have routinely raided the tax to fill state budget gaps. Their logic: The money comes directly from the health care industry and should go back into the health system.

The initiative, Hicks says, prioritizes critical elements of the state’s health care delivery system by funding clinics, emergency departments and primary care providers. It also deposits some tax money into the general fund to give lawmakers flexibility, Hicks said.

A calculated risk for Medi-Cal

Newsom was able to raise fees and subsidize Medi-Cal spending in the general fund, in part, because he wants to raise the tax levied on health plans. The more health plans are taxed, the more dollars the federal government matches in California.

But some experts say this is a risky strategy.

Raising the tax and then diverting the money to the general fund like California is proposing is really dangerous, said Diana Dooley, who served as California’s secretary of Health and Human Services under former Gov. Jerry Brown.

The tax must be approved by the Centers for Medicare and Medicaid Services, which has already warned California that the state is exploiting the system and is unlikely to receive such a large tax benefit in the coming years. Federal regulators are looking at changes to reduce the amount of money going to California and the 17 other states that rely on the tax refund policy.

Dooley said the federal government has tried to get rid of this funding stream in the past, even under the Obama administration.

They are not very sympathetic to California. They like to say that California is so big you can take care of yourself. Dooley said. We must tread very carefully in our dealings with the federal government.

Representatives for Newsom did not respond to questions about the likelihood that the federal government would approve the tax hike.

Typically, lawmakers don’t want to hand over control of the budget to voters, fiscal and political experts say.

Previous voter initiatives that tie spending to specific buckets cause problems when lawmakers try to balance the budget during deficit years. Proposition 98, which passed in the 1988 election and allocates roughly 40% of the state budget to education, routinely comes under fire during budget season for deadlocked lawmakers.

If every program runs a ballot initiative, you virtually guarantee huge budget deficits as far as the eye can see, said Dan Schnur, a former Republican strategist who teaches political communication at the University of Southern California and UC Berkeley. Each voter spending mandate creates an additional challenge for the Legislature.

Supported by the California Healthcare Foundation (CHCF), which works to ensure this people have access to the care they need, when they need it, at a price they can afford. Visit to learn more.

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