Prop 35 earmarks tax to Medi-Cal programs and providers

The official name for Proposition 35 is “Provides Permanent Funding for
Medi-Cal Health Care Services.”

California already has a “Managed Care Organization Provider” tax. This
is imposed on the State’s health care plans, e.g., Aetna, Kaiser
Permanente, and others. It is generally based on the number of people
whom the plan covers, including those in Medi-Cal.

The Legislature has not permanently approved the tax, it normally
approves it for a few years each time. The Federal government must
approve the tax annually. The tax was last approved in 2023, and this
approval expires in 2026; unless the State and Federal government
approve another extension.

According to the Legislative Analyst’s Office, expected annual revenues
are between $7 billion and $8 billion. The funds are used to help fund
Medi-Cal. In the current budget, most of this revenue is used to fund
existing Medi-Cal costs rather than providing increases to some health
programs or activities. This reduces some demand on General Fund revenue
for these programs.

Prop 35 makes two important changes. It makes the MCO tax permanent,
although the Federal government’s approvals would still be necessary.

In addition, Prop 35 sets specific rules about how the health plan tax
revenues may be used. “. . . to use more of the revenue to increase
funding for Medi-Cal and other health programs,” the LAO wrote. After
2027, increased funding for the Medi-Cal and other health programs
changes compared to the current law.

For example, under the current law and Prop 35, both doctors and other
related providers are eligible for increased funding or higher rates.
The same is true for emergency medical transportation.

But in the future, nonemergency medical transportation, private duty
nursing and certain long-term supports would not be eligible for any
increased funding from the MCO tax revenue.

So, Prop 35 makes the health plan tax permanent and this provides more
funding for certain health services ($2 billion to $5 billion annually)
for Medi-Cal, it limits how these funds may be used.

For example, beyond 2027, Prop 35 increases reimbursement rates for
primary care services and increases specialty care providers. Besides
funding some current emergency room costs, rates for these services and
family planning would receive more funding.

Thus, increasing some other health programs in the years after 2026 will
put existing programs in competition with other General Fund activities
such as law enforcement, parks and housing.

“Prop. 35 would result in policymakers having even less flexibility in
making budget decisions. . . In years when the state is facing a budget
shortfall, this limited flexibility could result in cuts to other
critical public services . . .” wrote the California Budget and Policy
Center.

If Prop 35 is approved, it could affect the current FY 2024-25 budget,
the Budget and Policy Center argued. Support for existing Medi-Cal
programs would have to used, instead, for provider rate increases, which
would require additional General Fund revenue to support the current
programs.

The Center also believes that several programs funded by the current MCO
tax are not included in the proposed changes. These include continuous
health insurance coverage for children from birth to five years,
increasing rates for community health workers, and long-term support for
children with complex medical needs as well as older adults and people
with disabilities.

Funding

As of July 31, the “Yes on 35” Committee had received $9.9 million in
contributions and had $5.1 million in cash remaining. The California
Hospitals Committee and Global Medical Response had each given $2
million. The California Medical Association, the California Dental
Association, and the Family Health Centers of San Diego had each given
$1 million. In late August, the California Hospitals Center gave another
$5 million.

Separately, the Planned Parent Advocacy Project of Los Angeles County
had given and spent $211,000 in support of Prop 35.

Opposition

As of Aug. 27, no committee has been established to oppose Prop 35.
However, the League of Women Voters urges a “No” vote on Prop 35.

“Prop 35 is a well-meaning but misguided effort to try to provide more
and steady funding for Medi-Cal and potentially improve reimbursement
rates for medical providers. Prop 35 would change the temporary tax that
helps fund Medi-Cal to a permanent tax on Managed Care Organizations
(MCOs) and require the tax proceeds to be used to support only Medi-Cal
and other health programs – making that money unavailable for other
priorities and making it difficult to respond to future changes to
Medi-Cal that might be mandated by the federal government.

“The League of Women Voters of California is generally opposed to
‘ballot-box budgeting,’ which limits the legislature’s flexibility to
make budgetary decisions and adjust priorities based on emerging and
essential needs. Budgetary decisions should be made by the legislature,
not by earmarking funds through ballot initiatives,” the League wrote on
its website.