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California Democrats seek $1.5 billion for low-income health care. GOP wants answers

California Gov. Gavin Newsom and state lawmakers are trying to find a way to fund Medi-Cal and other promised safety net programs while dealing with a projected deficit of $38 billion to $73 billion.

One solution is increasing a managed care organization, or MCO, tax on health insurers to raise an additional $1.5 billion in federal dollars through 2026. California uses the tax to draw down federal dollars and fund services related to Medi-Cal, the state’s version of the federal Medicaid program.

But Democratic budget leaders have been unclear about how exactly that new $1.5 billion will be spent, angering Republicans who are already unhappy about Newsom’s continuing push to expand health coverage for undocumented Californians.

Here’s where the funding will go and who will benefit from ongoing Medi-Cal spending.

How will the state spend the money?

Under the governor’s budget, the state will spend nearly $36 billion in general fund dollars on Medi-Cal during fiscal year 2024-25, down about $1.4 billion from the previous year, the Legislative Analyst’s Office reported.

To capture additional funding in a tough budget year, lawmakers during their final week of session before their spring recess approved a $1.5 billion increase to the MCO tax the Legislature signed off on last year. The federal government still needs to OK the extra money.

The tax is “a mechanism to generate new state funds that can be used to match with federal funds to bring additional federal Medicaid dollars to California,” according to the California Department of Health Care Services.

California last year was slated to get $19.4 billion from that tax, which the state Department of Health Care. The additional $1.5 billion brings the total to $20.9 billion through 2026.

Lawmakers during last year’s budget negotiations set aside about $11 billion of the state’s MCO tax money to increase reimbursement rates for Medi-Cal care providers. The governor in his January budget proposed spending $8 billion of the funding on provider increases, preserving the reimbursement hikes but spending the money over a shorter period of time.

During budget committee hearings, Republicans pressed Department of Finance representatives on how Democrats will spend the additional $1.5 billion they are seeking.

Sen. Brian Dahle, R-Bieber, during a March 19 Senate Budget Committee hearing, wanted more information on exactly how the new money would support health care providers. He grew frustrated when Senate Budget Chair Scott Wiener, D-San Francisco, said that would be the subject of later budget negotiations between the governor and legislative leaders.

“I don’t get to be in those parties,” Dahle said. “And I would like to know. Because you exclude us, and this is my opportunity to find out if I can support this or not support it. If it’s going to help keep my rural hospitals open, then I might support it. If it’s not, I may not.”

Department of Finance staffers suggested the $1.5 billion will go toward shoring up the general fund. More specifically, the money will go into a special fund that’s used to support various aspects of Medi-Cal, said Laura Ayala of the Department of Finance.

H.D. Palmer, a Department of Finance spokesman, said the governor’s administration means for the $1.5 billion to go toward maintaining ongoing Medi-Cal base services, preventing reductions to rates and plans’ scope of coverage.

“Instead of using general fund, or wherever the administration would find that additional $1.5 billion, we’re proposing to draw down the $1.5 billion and use that instead of general fund,” said Laura Ayala of the Department of Finance during the hearing.

During the Senate floor vote on the proposal on March 21, Wiener said the plan “does not include any language governing expenditures of the increased revenue from the MCO tax.”

“That issue, the expenditures, will be addressed in a trailer bill to be considered by this body in the June budget,” he said.

Undocumented Medi-Cal expansion

Ahead of the Senate vote, Dahle again expressed frustration about the lack of information regarding how the additional money will be spent.

He was also critical of the state’s spending money to provide Medi-Cal for undocumented Californians. Other Republicans have complained about this since the beginning of the year, when an estimated 700,000 undocumented Californians ages 26 to 49 became eligible for comprehensive Medi-Cal benefits — the final piece of an effort to cover all income-eligible undocumented residents in the state.

“I tried to get some answers during our budget hearing from the LAO and the administration on how this money is going to be spent,” Dahle said. “Unfortunately, I didn’t get a very good answer. I did find out that approximately $3.6 billion will be going to undocumented folks coming into our state that haven’t participated in our tax program.”

The federal Medicaid program, which insures low-income Americans, does not cover undocumented immigrants. California is one of a handful of states that funds insurance for populations that are ineligible for federal coverage.

The expansion is expected to cost about $1.4 billion in fiscal year 2023-24, $3.4 billion in 2024-25 and $3.7 billion moving forward, according to an analysis from the California Budget and Policy Center.

California began covering Medi-Cal for all children under 19 in 2015. Low-income undocumented immigrants ages 19 through 25 became eligible in 2019, and those 50 and older received coverage in 2022.

Most of the people who started getting comprehensive benefits in January were already enrolled in Medi-Cal for the limited services they could previously get covered, including pregnancy and emergency care. The state will automatically enroll those already receiving restricted-scope coverage in the comprehensive plans.

Expanding Medi-Cal to all undocumented residents had been a decades-long goal of health and immigration advocates. Amid pushback and anti-immigrant rhetoric, they argued expanded coverage would close gaps in health disparities to those who contribute billions in taxes.

Several studies indicate immigrants without legal status are more likely to avoid medical care and experience higher rates of chronic health conditions.

Newsom’s January budget estimates an average monthly Medi-Cal caseload of 14.8 million people during the 2023-24 fiscal year, the LAO reported. The state’s three previous undocumented Medi-Cal expansions covered about 651,000 people as of the latest data available in October and December 2023, according to Department of Health Care Services data.

That means about 1.4 million undocumented Californians could now get full Medi-Cal coverage, after adding in the 700,000 newly-eligible recipients. As a group, the full undocumented expansion population accounts for about 9.5% of the entire estimated 2023-24 Medi-Cal caseload.

Health Care Services data on the number of 26- to 49-year-old Medi-Cal recipients enrolled in the full-scope program since January will not be available until early April.

Newsom’s budget estimates the state’s overall Medi-Cal caseload will drop to about 13.7 million during the 2024-25 fiscal year, mostly because California can now reassess recipients’ eligibility, which the federal government did not allow during the COVID-19 pandemic.