California is ready to spend $19 billion on Medicaid and other health programs

After accounting for federal funding, the state will be able to spend more than $35 billion, said Jennifer Kent, a former government official who helped the coalition propose a structure for the tax.

It would be the largest investment ever made in Medi-Cal, California’s Medicaid system.

“We’re trying to offer a Medi-Cal program that’s the size of some states’ combined populations,” said Linnea Koopmans, CEO of Local Health Plans of California, which was part of the coalition. “It takes an investment of this magnitude to have a meaningful impact.”

To accomplish this, physicians and health insurance companies, hospitals and unions, emergency services providers, safety net clinics, and Planned Parenthood all had to rally behind a single proposal, while balancing the governor’s need to pump money into the treasury and the Legislature’s desire to pump money into the Spend money on your constituents’ priorities, like keeping hospitals open.

They did this by meeting for two hours every week since November and discussing spending details over lunch at the California Medical Association’s headquarters and filling the whiteboards in the conference room with calculations. Dustin Corcoran, CEO of the Medical Association and chairman of the coalition, said he even dreamed of the tax.

“A lot of sausage was made,” Corcoran said. “It’s not always pleasant or fun, but we’ve ended up in a place that we can be really proud of.”

Health insurance is taxed based on how many people it covers, and that money is used to mobilize billions more from the federal government while passing almost no cost on to consumers. Historically, those taxes on managed care plans — the MCO tax — have gone into the state’s general fund, which was used to balance the budget during tough times.

But this year, almost every health care advocate and elected official in the state called for the money to stay in the health care system. California has brought millions more people to Medicaid in recent years and is adding more benefits as the state overhauls the program. But there aren’t enough doctors to treat all new members. The coalition urged the state to step in and increase reimbursement rates to allow more doctors to treat Medi-Cal patients.

There must be doctors to examine people before they get to the emergency room, Corcoran said.

“The MCO tax by itself will not be a panacea for all of the Medi-Cal system’s shortcomings,” Corcoran said. “But it can go a long way towards erasing these historical inequalities.”

At one point, the Newsom administration wanted the bulk of the money to go into the overall budget to fund existing priorities in Medi-Cal, such as expanding the program to include eligible undocumented immigrants. In May, he unveiled a plan to increase reimbursement rates for some specialties to balance the budget and save the rest of the money for distribution over several years. That worried lawmakers and industry leaders because they feared the money would later be gobbled up by other budget priorities.

Some spending will start next year, but most won’t begin until 2025.

For the coming year, the deal is broadly in line with what Newsom proposed in May. Some of the money will be used to balance the budget, with $3.5 billion going to the general fund. Reimbursement rates for three specialties will be raised: primary care, OB-GYN and some mental health services will now receive 87.5 percent of what the federal government pays them through Medicare.

And $75 million will be used to create new residency positions for medical school graduates. California is a net exporter of medical graduates, and these new residents will be concentrated in underserved areas, likely in the Central Valley, parts of Los Angeles, and the Imperial Valley.

The deal includes money to boost struggling hospitals, alleviate labor shortages and attract more specialists to treat Medi-Cal patients. It is up to the Department of Health to determine whose turn it is, based on where patients are being treated most severely. Coalition leaders say they want to avoid a lobbying frenzy in which all interest groups compete for a pay rise.

“Rather than just going to the legislature for our individual needs, this is a way to really look at things more holistically for patients,” said Jodi Hicks, CEO of Planned Parenthood Affiliates of California and vice chair of the Coalition.

The state would spend $300 million on behavioral health beds under the deal — part of an initiative to stop people who need mental health care from circulating through prisons and emergency rooms. California has a shortage of 6,000 psychiatric beds and is preparing to ask voters in 2024 to approve nearly $5 billion in bonds to create more.

When California last tried to renew that tax in 2016, it took the then governor a year of intense lobbying. Jerry Brown and his government, who ultimately had to call a special session of the Legislature to get passage.

The tax was due to expire last year, and there were no plans to extend it. In seven months, it was Medi-Cal’s largest investment ever.

“It really feels like a win,” said Koopmans.

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