California Governor Gavin Newsom and the state Legislature enacted a $196 billion spending plan for FY2021–22, including authorizing a 29% increase in health care spending over FY2020–21. This new level of spending is in part a response to the COVID-19 pandemic, but much of it will go to pay for Medi-Cal expansion, innovation and reform that was under consideration before the pandemic.
Lawmakers are able to commit to record spending on health care because of an unprecedented $85 billion budget surplus, which includes higher-than-expected tax revenues and $26 billion in nonrecurring federal COVID-19 relief funding.
Overall, the 2021–22 budget authorizes an 18% increase in General Fund (i.e., state tax-supported) spending over last year’s expenditures, which translates into more than $30 billion in new spending year-over-year. This new spending includes:
Despite record revenues and planned record spending, lawmakers continued their decade-long commitment to hedging against future economic downturns by allocating 85% of discretionary funding to one-time or short-term spending, increased the state’s available reserves to $25.2 billion and paid down $2.3 billion in unfunded pension debt.
The spectrum of new health care and related social services spending generally includes:
Expanding Access to Care and Related Services
Medi-Cal Expansion to Cover More Californians
The budget expands Medi-Cal coverage to undocumented adults aged 50 years and older, beginning in May 2022. The Legislative Analyst estimates that 201,000 additional individuals will be enrolled under this proposal, which has been a high priority for the Legislature, at a cost of about $300 million in state-only funding. California already provides full-scope Medi-Cal benefits to children (up to age 26) of undocumented parents. The estimated $300 million incudes funding for In-Home Supportive Services costs that are included in the Department of Social Services budget.
Putting these numbers in perspective, total enrollment for Medi-Cal membership this year is expected to be 14.5 million, more than one-third of Californians continue to be covered by Medi-Cal, and annual Medi-Cal spending in the new budget is projected at a little over $112 billion, 75% of which is funded by the federal government.
Continued Funding for Telehealth and Remote Monitoring
The budget includes $151 million for the extension of telehealth flexibilities at the reimbursement rates guaranteed during the pandemic, including payment parity for audio-only modalities, through at least December 2022, together with just over $106 million for ongoing remote patient monitoring. While this short-term extension is critical to maintain access to care for 7.4 million health center patients, a permanent solution is needed. The health budget trailer bill includes a stakeholder process to assess the impact of telehealth on access, quality and equity.
Supplemental Provider Reimbursement Payments Under Proposition 56 Secured; Provider Rate Increase
The budget eliminates the state’s oft-threatened suspension and redirection of taxes collected under Proposition 56 (2016). Proposition 56 supports access to health care for low-income Californians covered by Medi-Cal by raising the tax rate on cigarettes and other tobacco products to fund supplemental provider reimbursement payments that have increased the number of dentists and doctors who can afford to provide care for Medi-Cal members.
The budget also provides for a multiyear developmental service provider rate increase, raising rates by $1.2 billion by 2025–26, to help increase the number of developmental services providers available to Medi-Cal members.
Funding to Eliminate the Medi-Cal Asset Test by 2024
The budget provides $394 million in 2022–23 and going forward to cover the costs of extending Medi-Cal eligibility to individuals who have up to $130,000 in assets, plus $65,000 for each additional household member, starting July 1, 2022, with the ultimate goal of eliminating asset-based Medi-Cal eligibility determinations by January 1, 2024.
Eliminating asset-based Medi-Cal eligibility determinations has been an issue since Obamacare repealed the state’s asset test for determining whether children and low-income working families qualify for Medi-Cal, but did not repeal the state’s asset tests for individual seniors and persons with disabilities. This change will remove the asset test altogether, bringing parity to Medi-Cal eligibility determinations.
Additional Investments Made to Reduce Barriers to Access to Care and Services
The Department of Health Care Services’ and the Department of Aging’s respective budgets include additional investments intended to bring down barriers to access to care and services, including:
The budget includes funding to support ongoing efforts to recast and modernize the Office of Statewide Health Planning and Development as the Department of Health Care Access and Information. Lawmakers approved $4.9 million for this effort in 2021–22 and $2.4 million in 2022–23. With these additional dollars, the state can target funding to recruitment, training and employment of doctors and other health care professionals where the need is greatest to reduce the divide in access to care, particularly in communities of color. In addition, the budget supplements current funding with over $70 million in additional funding to support existing workforce development programs, including:
Continued Investment in Innovation and Reform of the Medi-Cal Program
CalAIM Innovation Funded
After a pandemic-imposed one-year delay, the budget authorizes the Department of Health Care Services to proceed with the Governor’s signature multiyear Medi-Cal reform: California Advancing and Innovating Medi-Cal (CalAIM).
Launching next January, CalAIM is an ambitious effort to transform Medi-Cal by better managing risk, improving outcomes and increasing health care equity. Drawing on successes from the Whole Person Care and Health Homes Program pilots, and the Coordinated Care Initiative, CalAIM will integrate physical, behavioral and oral health care under a unified managed care model. A new enhanced care management benefit will support an interdisciplinary approach to whole person care that includes medical, behavioral, social, oral care, and long-term services to support the needs of identified high-cost and/or high-need Medi-Cal managed care plan members. As part of the plan, up to 14 optional “in lieu of services” may be offered to address the needs of those with the most complex health issues, including conditions caused or exacerbated by lack of food, housing or other social drivers of health.
As part of CalAIM, the Budget includes $315 million to provide population health management services that expands access to medical, behavioral, dental and social service data and provides authorized access to administrative and clinical data from the state, health plans and providers to counties, managed care plans, providers and beneficiaries to better identify and stratify member risks and inform quality and value delivery across the continuum of care.
Office of Health Care Affordability’s Fate Remains Unresolved
While CalAIM is fully funded, the fate of a related proposal by Governor Newsom to create an Office of Health Care Affordability remains the subject of negotiations between the Governor and the Legislature.
Lessons Learned From the Pandemic Result in Funding to Restore CA’s Public Health System
The Governor and Legislature agreed on a new and ongoing $300 million commitment to improve the state’s public health system, beginning in 2022–23, based on an analysis of lessons learned during the COVID-19 pandemic. This investment begins to reverse 20 years of disinvestment in the state and local public health services network. Initially, funding will prioritize restoration of contact tracing, laboratory and testing capabilities that have been largely missing statewide throughout the pandemic.
Remaining budget items, including climate change and high-speed rail funding, will be taken up when the Legislature returns from its Summer Recess on August 16. The Legislature must act on these items before it adjourns for its 2021 Regular Session on September 10, and Governor Newsom would then have until no later than October 10 to approve or veto the new spending.