June Joint Legislative Update on the California 2024-2025 State Budget
Despite substantial proposed budget cuts to cover the $45 billion deficit, the California legislature released a $297 billion joint budget proposal responding to Governor Newsom’s May Revision. The final bill lays out a $46.9 billion dollar solution for the 2024-2025 fiscal year made up of program reductions, delays, & deferrals; revenue; fund shifts; and reserve utilization. In opposition to the Governor’s May Revise, the shortfall will be covered by alternative means including a temporary tax increase on businesses allowing for a $5 billion revenue increase, and a $1 billion cut to the state prison budget. In an effort to secure funding for future fiscal years, the legislature approved Governor’s Newsom’s proposal of creating a temporary holding account during times of a surplus.
The finalized budget rejects many of the Governor’s May Revision proposals for elimination of core health initiatives that Californian’s depend on including behavioral health services, MCO tax investments, In-home supportive Services, and Medi-Cal expansion for all regardless of immigration status. Below is a review of notable health care proposals included in the Joint Legislative Budget Plan:
Behavioral Health
In our last post, on the May Revise, we reported Governor Newsom had proposed a multitude of eliminations for state behavioral health initiatives including the California Mental Health Services Act, the Behavioral Health Consortium Infrastructure Program, and the Children and Youth Behavioral Health Initiative. Fortunately, the joint budget proposal rejected the proposed cutbacks for behavioral health funding and provides for expenditures across multiple mental health programs. Specifically of note, AB 531(The Behavioral Health Infrastructure Bond Act of 2023) will provide funding for the Behavioral Health Infrastructure Program as well as a retention of the $34.7 million General Fund expenditure for the Children and Youth Behavioral Health Initiative. Conversely, the CalWORKS mental health program which supports Californians in need of substance use disorder treatment will have reductions in funding over the next three fiscal years.
Medi-Cal
The In-Home Supportive Services (IHSS) is a service for undocumented individuals and those with disabilities who rely in-home care services over 14,000 people. This program is critical in proactively decreasing medical care costs by reducing the need for more expensive care such as nursing home. In May, Governor Newsom proposed eliminating the program as a whole but the Legislator’s Budget Plan rejected this proposal in an effort to retain care for eligible individuals who would otherwise be unable to receive healthcare due to their immigration status. Likewise, the Governor’s May revision of the budget suggested a cut to Medi-Cal coverage for acupuncture but the finalized budget maintains this benefit through General and Federal Funds for the foreseeable future.
Workforce Development
In an effort to save $6.7 billion, Governor Newsom’s proposed eliminating the Managed Care Organization (MCO) tax in the May Revise. The MCO tax is crucial in funding growing numbers of Medi-Cal recipients by increasing the payment rates to providers, which has remained unchanged for nearly twenty years. Last year, the MCO tax rate increase was approved through 2027 but upon review of the May Revise, it was clear the program was in jeopardy, angering physicians and other healthcare providers alike. Failing to make good on this program could result in doctors no longer serving Medi-Cal patients as reimbursement rates could prove too low to sustain their practices, thereby reducing an already dwindling pool of providers for vulnerable Californians. Providers are taking matters into their own hands to ensure passage of this tax by advocating to pass a measure that would officially implement the MCO tax allowing for direct access of revenue funds. H.D. Palmer, the spokesperson for the California Department of Finance remarked on the implications of failing to increase the MCO tax: “But many Medicaid patients are having a hard time finding doctors that will treat them, mostly because they don’t get paid much to do it. It’s especially true when needing to see a specialist, where a lengthy delay can often transform a minor medical problem into a major one.” Governor Newsom is against the ballot measure as it would make flexibility of funds to support other areas of Medi-Cal difficult but the coalition is standing firm due to multiple delays and diversions in the past.
2023’s passage of SB 525 sought to incrementally increase the minimum wage for health care workers to $25 over multiple years. However, in light of the significant budgetary shortfall forecasted in May, Governor Newson was hesitant to begin the statute’s increase due to the anticipated cost of nearly $2 billion despite alternative estimates closer to $300 million. As result, SB 828 was signed on May 31 to push-back the implementation of the wage increase by one month, beginning in July 2024. In an attempt to compromise, lawmakers are pushing to rollout the first of the increases with an influx of $100 million over the next fiscal year with an additional $200 million over the next two years. As it stands now, the pay increase is set to begin no earlier than October 15 but is dependent on one of the following scenarios: (1) the first quarter of the state’s fiscal year comes in at lease 3% higher than projected, or (2) the state receives greater federal funds for hospitals via a quality-assurance fee.
The Equity and Practice Transformation Payment program seeks to enhance the quality of care for Medi-Cal recipients by rewarding providers with grants when they align their practices with value-based models. However, the governor sought to eliminate this program by stripping away the remaining $280 million from the fund. The Joint Budget Plan rejects Newsom’s elimination proposal and instead allows for a reduction in funding of the grant program over the next three fiscal years.
Next Steps
Amendments to the bill, in the form of trailer bills, will be passed prior to the start of the new fiscal year, set to begin on July 1. The Source will continue to update on noted healthcare initiatives and budgetary matters as amendments are enacted and the finalized bill is passed.