California voters give Medi-Cal doctors a raise by passing Prop. 35

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Doctors who serve California’s poorest residents will get paid more, in some cases, for the first time in two decades, thanks to a ballot measure approved by voters Tuesday. 

The Associated Press called Proposition 35 victorious after results showed it jumped to a sizable lead. The ballot measure asked voters to earmark between $2 billion and $5 billion of special tax revenue annually to Medi-Cal, the state’s health insurance program for low-income residents and people with disabilities. The revenue comes from an existing tax on health insurers that lawmakers are currently able to spend in other ways. 

Supporters of the measure, which includes nearly the entire health care industry, have long argued that the tax revenue comes from health care and should be reinvested in the state’s health care system.

“Prop 35’s victory on the ballot is a victory for patients across California,” said Jodi Hicks, president of Planned Parenthood Affiliates of California and Prop. 35 co-chairperson, in a statement. 

Dustin Corcoran, the other co-chairperson and chief executive of the California Medical Association, said voters have made a “generational investment” that will stabilize the Medi-Cal program

Nearly 15 million Californians, a third of the state’s population, rely on Medi-Cal. Over the past decade the state has taken steps to expand access and benefits to its poorest and most vulnerable populations. 

That expansion, however, has not come with incentives for doctors to see more patients, and the Medi-Cal system is plagued with long wait times and poor outcomes. 

Opponents of the measure, who were mostly small community providers and disability advocates, warned that Prop. 35 would restrict Medi-Cal spending too much. They conceded the results and said the vote showed Californians want to secure funding for Medi-Cal.

“Today’s vote makes clear that Californians support the Medi-Cal program and want to improve access to health care for the most vulnerable. While we opposed Prop. 35 because of the details, state leaders now have a mandate to improve Medi-Cal and must fulfill that obligation,” said Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Coalition, which led the opposition campaign.

What does Prop. 35 promise? 

Payments to doctors and others who serve Medi-Cal patients have not kept up with the state’s benefit and eligibility expansions. According to the Kaiser Family Foundation, California’s reimbursement rate falls in the bottom third state Medicaid systems.

Prop. 35 earmarks a majority of the state’s Managed Care Organization Tax — or MCO Tax — to raise rates for certain providers in an effort to improve access to health care.

The tax on health plans comes from a long-standing agreement with the federal government: Health insurers agree to put tax money into the Medi-Cal system in order to get a dollar-for-dollar match from the feds. California has levied the tax on health insurers on-and-off for the past two decades but has never specified how the money should be spent.

Some of the winners who will see better pay if Prop. 35 passes include doctors and certain specialists, behavioral health facilities, outpatient clinics, hospitals, ambulances and doctors-in-training.

What happens to the state budget? 

Medi-Cal gets about $35 billion from California’s general fund, and the state currently uses about $7 billion from the MCO tax toward that program. Gov. Gavin Newsom and lawmakers agreed in this year’s budget to use a portion of the tax to pay for some rate increases and program expansions, but they weren’t necessarily the rate increases supporters of the measure wanted. 

Since voters approved Prop. 35, the state will face a $2.6 billion deficit in the current budget because the ballot measure will redirect money that was dedicated to other things. That deficit would increase to $11.9 billion over the next three budget cycles, according to an analysis from the Department of Finance.

Lawmakers won’t have to address the shortfall until next year’s budget deadline in June. But the majority of the MCO tax would no longer be available for general government spending.

Some of the rate increases that would be canceled if the proposition passes include ones for air ambulances, pediatric and adult day services, congregate living health facilities, private duty nursing and continuous Medi-Cal coverage for children under age 5.

Who supported it?

A broad health care coalition that includes doctors, hospitals, dentists, community clinics, emergency responders and Planned Parenthood supported Prop. 35. 

Supporters raised more than $55 million with the largest donations coming from the California Hospital Association, the California Medical Association and Global Medical Response, an ambulance company.

They argued that without a serious investment, Medi-Cal patients would continue to get health care in a second-tier system that didn’t have enough doctors to meet their needs. Proponents also said they were tired of politicians promising to fully fund Medi-Cal and not delivering. Last year, Gov. Gavin Newsom made a deal with Prop. 35 supporters to inject more MCO tax revenue into Medi-Cal, but redirected most of the money this year to fill the state’s budget gap.

Who opposed it and why? 

Prop. 35 was opposed by a small group of community health advocates and Medi-Cal providers, including the California Pan-Ethnic Health Network, The Children’s Partnership, Western Center on Law and Poverty and Disability Rights California.

They acknowledged that providers needed to be paid more for their services but argued that the proposition could backfire and cause Medi-Cal to lose billions in federal funding. That’s because California has been reprimanded by the federal government for exploiting a loophole in the tax law. If the proposition passes, it would make it extremely difficult for the state to change how it funds Medi-Cal, opponents said. 

After the measure passed, opponents said the state must be transparent in how it spends the special tax revenue and consult with communities that rely on Medi-Cal.

“In the longer-term, state leaders will face the challenge created by capping federal revenues under Prop. 35. Fully funding Medi-Cal will require raising revenues and ensuring that the wealthiest Californians and corporations pay their fair share to support the health and wellbeing of all Californians,” Savage-Sangwan with the California Pan-Ethnic Health Coalition said in a statement.

Newsom did not formally oppose the measure but voiced concerns about its potential to restrict how lawmakers spend money while facing down a multibillion-dollar state deficit.

Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.