With the financial strain in California, the state’s Medi-Cal healthcare assistance program is also feeling the impact. Groups like the California Medical Association (CMA) are mobilizing doctors to urge lawmakers to stop proposed budget cuts to Medi-Cal and refrain from using MCO taxes to plug California’s deficit.
Governor Newsom recently submitted a revised $288.1 billion budget for the 2024-25 fiscal year, announcing plans to address a $27.6 billion deficit in that year and handle the remaining $28.4 billion deficit in the 2025-26 fiscal year.
In this budget proposal, the governor retained the rate increase agreed upon with the medical community at the end of 2023; however, the CMA expressed deep disappointment over the $5.4 billion funding earmarked for rate increases for Medi-Cal providers in 2025 being cut, along with the elimination of $75 million in graduate medical education funds.
In recent years, the population covered by the Medi-Cal program in California has grown, with low-income individuals, regardless of immigration status, receiving coverage. Approximately one-third of California residents benefit from Medi-Cal assistance. However, with the state government facing significant funding shortages, the governor is considering backing out of the agreement reached with the medical community last year to make up for a multi-billion-dollar state funding gap.
In December 2023, the California Medical Association, along with other healthcare organizations, formed an alliance and reached a “landmark” budget agreement with Newsom and the state legislature. Commencing on January 1, 2024, the largest rate increase for Medi-Cal providers in California’s history was implemented, with plans for another increase on January 1, 2025, aimed at “improving access and equity for Medi-Cal users, allowing doctors and other providers to serve more Medi-Cal patients.”
“The investment in Medi-Cal set to take effect in 2024 is a tangible outcome of our advocacy, providing meaningful healthcare services to California’s most vulnerable,” said Dr. Tanya Spirtos, President of the California Medical Association, at the time.
The agreement plans to tax Managed Care Organizations (MCOs) to enhance reimbursement rates for primary and specialty care under Medi-Cal, along with significant investments in healthcare infrastructure.
Medi-Cal is a publicly funded health insurance program paid for by federal, state, and local government taxes, serving populations such as low-income children, adults, families with children, elderly individuals, individuals with disabilities, foster families, pregnant women, and those with certain illnesses. According to the state legislative office’s projections in October 2023, the Medi-Cal program in California is estimated to cost $152 billion for the 2023-24 fiscal year.
According to state legislative office data, the federal government covers approximately 50% of Medi-Cal costs, with California’s funding coming from the state’s general fund, special funds, and local government funds.
Since 2005, California has levied MCO taxes, requiring all MCO providers, regardless of their participation in the Medi-Cal program, to pay taxes. Over the past two decades, it has been a significant source of non-federal funds for California’s Medi-Cal program, reducing the state’s general fund contributions. In 2016, California also passed Proposition 56, raising tobacco taxes, with a large portion of revenue supporting the Medi-Cal program.
With the upcoming November election, a proposition titled “Provides Permanent Funding for Medi-Cal Health Care Services” (State Attorney General Tracking Code 23-0024A1) may appear on the ballot (to be confirmed by the end of June). This proposition will be decided by voter referendum on whether to make the existing MCO tax (set to expire in December 2026) permanent, with projected annual revenues of $6 to $9 billion.