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.