Manatt, Phelps & Phillips, LLP

California’s New Budget Commits the State to Record Health Care Spending

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.

Historic Revenues Allow Record Spending

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:

  • Expanding Medi-Cal coverage to undocumented adults aged 50 years and older
  • Increasing subsidies for child care
  • Supporting local governments’ efforts to combat homelessness
  • Achieving the largest per-pupil expenditure in state history for K–12 public education
  • Investing in “middle mile” broadband infrastructure to help overcome the digital divide

Focus on One-Time and Short-Term Spending Hedge Against a Downturn

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.

Focus on Health Care

The spectrum of new health care and related social services spending generally includes:

  • expanding access to care and services, including through workforce development;
  • committing to funding efforts to reform Medi-Cal, including a renewed and expanded commitment to “whole person care”; and
  • reversing a decades-long disinvestment in the state’s once highly regarded public health system.

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:

  • $63 million for the California Reducing Disparities Project to scale up its work supporting pilot projects operated by community-based organizations throughout the state, which provide culturally responsive mental health and behavioral health services to historically underserved communities;
  • $40 million for capacity building to better identify and serve those eligible for Senior Nutrition programs;
  • $14.3 million in 2021–22 and $35 million ongoing for increased meals in Senior Nutrition programs;
  • $25 million to help fund filing fees for DACA and naturalization for Medi-Cal beneficiaries;
  • $16.3 million increasing to $201 million by 2026–27 to allow community health workers to provide benefits and services to Medi-Cal beneficiaries;
  • $12 million in 2021–22 and 2022–23 to support Navigators for dually eligible senior Medi-Cal beneficiaries to help them access care;
  • $2 million in 2021–22 and in ongoing funding for CalFresh Expansion outreach; and
  • $2 million in 2021–22 and in ongoing funding to support free clinics.

Workforce Development

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:

  • $50 million to support grants to new primary care residency programs and $10 million to support grants for a pre-licensure registered nursing program through the state’s Healthcare Workforce Training Programs;
  • $16 million in ongoing funding for the Health Professions Careers Opportunity Program;
  • $10.5 million for the California Medicine Scholars Program to establish a regional pipeline program for community college students to pursue premedical training and enter medical school, in an effort to address the shortage of primary care physicians in California and address widening disparities in access to care in underserved communities; and
  • $8 million to support grants through existing programs to expand the workforce serving older adults through the Geriatric Workforce Development Program.

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.

What’s Next?

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.

×