MEDI-CAL: GROWTH, EXPANSION, AND IMPACT

 

Over the past three decades, Medi-Cal, California's Medicaid program, has undergone considerable changes and expansion. By 2016, the program provided coverage to more than one in three Californians, and as of January 2024, eligibility has been extended to include all residents with incomes below certain thresholds.

In 1990, Medi-Cal served about one in eight Californians, with eligibility limited to specific low-income groups like children, parents or caretakers of dependent children, and people with disabilities. Enrollment increased gradually throughout the 1990s and 2000s, influenced by economic shifts and minor expansions in eligibility for children and pregnant women. The ACA brought a significant change in 2014, allowing states to extend Medicaid coverage to most low-income adults without children or disabilities, with the federal government covering the majority of the costs. This brought about a more than 60% increase in Medi-Cal enrollment by 2016, adding over 5 million Californians to the program. At present, 46% of Medi-Cal enrollees are children and their caregivers, 34% are adults who gained coverage through the ACA, and around 15% are seniors and individuals with disabilities. Since the ACA expansion, the number of uninsured Californians has been reduced by half, with improvements noted in various health and economic areas. However, nearly 3 million state residents remain without comprehensive health insurance, many of whom are noncitizens excluded by federal policies. California has taken steps to address this gap.

As the state with the largest immigrant population, California has worked to close eligibility gaps created by federal restrictions and requirements on Medicaid access for some immigrants. When welfare reform in the 1990s separated Medi-Cal from cash assistance and limited eligibility to documented immigrants with green cards for at least five years, California chose to cover these individuals before they reached the five-year mark. Also, California extended coverage to several groups of low-income immigrants, including those with Deferred Action for Childhood Arrivals (DACA) status.

In the last few years, California has steadily expanded Medi-Cal eligibility, beginning with undocumented children. This was followed by expansions to include undocumented young adults, older adults, and, as of January 2024, all remaining adults who meet the income criteria.

Medi-Cal's massive expansion has made it the largest single expenditure in California's state budget, with total costs projected to approach $160 billion this fiscal year. This includes $98 billion in federal funds, $36 billion from the state General Fund, and $25 billion from other sources, including local governments and provider taxes such as the Managed Care Organization (MCO) Tax. The MCO tax was increased in both 2023 and 2024, with some of the revenue intended to raise payment rates for Medi-Cal providers to enhance access to care-- an ongoing priority for healthcare stakeholders. However, concerns about the state budget have put this plan in jeopardy. In November, voters will decide whether the revenue from the MCO tax should be committed to increasing provider rates or if more of it should be used to balance the state budget.

Medi-Cal has been at the forefront of Medicaid expansion, and research indicates that this growth has resulted in better insurance coverage, improved health outcomes, and a reduction in poverty. As the program continues to be a lifeline for millions, preserving and responsibly managing its resources is necessary. One effective approach is for plans administering the program to make use of modern technology solutions to enhance the coordination of care, improving efficiency and reducing costs. By maintaining and strengthening this vital program, California can continue to provide critical healthcare services to its most vulnerable residents.

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Proposition 35: A Tax on Managed Care Organizations

 

Proposition 35 is a proposed ballot measure in California that aims to enforce a fixed tax on managed care organizations (MCOs) that provide healthcare services for Medi-Cal. The measure also outlines specific ways the tax revenue must be utilized.

Background

Proposition 35 comes amid recent expansions to California's Medicaid program, Medi-Cal. Lawmakers have expanded Medi-Cal eligibility to include individuals who meet income requirements despite immigration status. Despite this expansion, many healthcare providers and advocacy groups claim that reimbursement rates under Medi-Cal are inadequate to cover the cost of care. Proposition 35 aims to address this funding shortfall.

What is the MCO Tax?

California has historically implemented an MCO tax periodically. In the summer of 2023, Governor Gavin Newsom and state legislators renewed this tax to support Medi-Cal, particularly as more residents became eligible for Medi-Cal coverage. According to the Legislative Analyst's Office, the tax is projected to generate between $6 billion and $9 billion annually through 2026.

Initially, lawmakers agreed to use part of the tax revenue to increase the reimbursement rates for providers serving Medi-Cal patients. These increases were viewed as necessary to avoid provider shortages and long wait times for patients. However, Governor Newsom later proposed reallocating billions from the MCO tax to pay for other Medi-Cal expenses. Consequently, the agreed-upon budget included funds for Medi-Cal provider rate increases, although less than initially planned.

Key Provisions of Proposition 35

Proposition 35 seeks to clearly define the allocation of MCO tax revenue. It limits California lawmakers' power to redirect these funds for other purposes, requiring a supermajority—three-quarters of the members—from both the state Assembly and Senate to make any changes to the measure in the future.

The proposition also proposes creating a new advisory committee for the Department of Health Care Services. This committee would include people from various sectors of the healthcare industry, such as physicians, hospitals, clinics, labor unions, and other healthcare stakeholders, to steer the allocation of tax revenue.

Allocation of Funds

In the short term, Proposition 35 mandates that the tax revenue be allocated as initially planned before Governor Newsom's proposed reallocations. This includes:

• Increasing reimbursement rates for healthcare providers under Medi-Cal.
• Funding training programs for healthcare workers.
• Supporting Medi-Cal costs from the state's general fund, which finances most public services.

The measure establishes a formula for distributing funds to different programs starting in 2027, with allocations contingent on the revenue generated by the tax.

Support and Financial Backing for Proposition 35

The Coalition to Protect Access to Care, a group comprising various healthcare organizations and associations, along with the California Democratic Party and the California Republican Party, have endorsed the measure. As of now, no organized opposition committees have been identified.

Additionally, significant financial contributions have been made to support Proposition 35, largely from healthcare industry groups:

• Global Medical Response Inc. has donated $5 million.
• California Hospitals Committee on Issues, sponsored by the California Association of Hospitals and Health Systems, contributed $2 million.
• The California Medical Association has provided $3.2 million.

Financial Ramifications

The Legislative Analyst's Office noted that Proposition 35 might reduce legislators' flexibility in overseeing the state budget. According to reports, Governor Newsom urged the coalition backing the measure to remove it from the ballot. The state's current budget relies on revenue from the MCO tax, and passing Proposition 35 could interfere with existing budgetary plans, according to arrangements in the health budget bill.

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CONCERNS RELATING TO CA's PHARMACY CARVE OUT

California's Governor, Gavin Newsom, signed an order at the beginning of 2019 to transition all pharmacy services for Medi-Cal from managed care to a FFS model. The consolidated purchasing power would make use of the state's population size to negotiate drug prices with pharmaceutical manufacturing companies. Private payers and insurance providers would also be allowed to participate in the public health system and negotiate prices.

The state's plan to take control of the pharmacy benefits for all of Medi-Cal's recipients has been controversial. There are concerns over its likely impact on MCOs, PBMs, pharmacies and the coordination of care. Currently, California's pharmacy benefit for Medicaid managed care is administered by ten separate PBMs. They are responsible for 90 percent of the state's Medicaid beneficiaries.

L.A. Care CEO, John Baackes, believes that the carve out will make coordinating care more challenging. He stated, "I think one of the advantages of a managed Medi-Cal plan like ours is that for people who are in very difficult circumstances health-wise, we do provide an element of care management that's important and if there's an element of the benefit that we don't control, then it's awkward."

In addition, critics are concerned about the impact that the pharmacy benefit carve out could have on pharmacies. While purchasing in bulk directly from manufacturers could drive down costs, it's unclear as to how drugs will be dispensed and how local pharmacies will maintain a profit.

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