Following last week’s release of Gov. Gavin Newsom’s proposed $322 billion budget for 2025-26, work will now focus on ensuring allocations from a recently approved managed care organization tax are delivered in accordance with the intent of the ballot measure passed in November.
Proposition (Prop) 35, a state ballot measure that voters overwhelmingly approved, will bring about a historic investment in Medi-Cal through a now permanent tax on managed care organizations (MCOs). This will deliver significant resources to providers who care for Californians covered by Medi-Cal: doctors, hospitals, federally qualified health centers, Planned Parenthood clinics, and more.
In the first year, as much as $1.4 billion will be used to bolster hospital care (when the initiative fully takes effect in 2027, that number could grow to an estimated $2.6 billion), including resources for: emergency department services, outpatient services, public hospitals, graduate medical education, inpatient psychiatric care.
Newsom’s proposed budget includes two key provisions related to Prop 35 and hospital reimbursement generally, where CHA will engage with both the Newsom administration and the Legislature:
- MCO tax allocations for 2025 and 2026 provider payment increases appear consistent with Proposition 35 — While the budget includes funding for provider payment increases for calendar years 2025 and 2026, the proposal defers decisions on specific payment methodologies to the stakeholder advisory committee required by the ballot measure. CHA will be at the center of conversations on methodologies.
- Resources proposed to evaluate hospital reimbursement — The budget includes state staffing resources to evaluate long-term hospital financing structures in the Medi-Cal program. The Department of Health Care Services has committed to working with CHA and has indicated that the proposal aims to protect federal funding, reduce administrative complexity, and improve Medi-Cal payments.
Other highlights of the budget include:
- No major spending cuts — Revenue is projected to be $16.5 billion higher than previously estimated, but the governor has suggested that a flagging economy or loss of federal funding from Washington, D.C., could place the state in the red, potentially necessitating cuts before the budget is finalized in June.
- A new hospital-based diaper initiative — The budget includes $7.4 million in 2025-26 and $12.5 million in 2026-27 for the Department of Health Care Access and Information to establish a new program that will provide a three-month supply of diapers at no cost to California families. On a voluntary basis, hospitals would serve as a means of distribution for the diapers.
The governor has added the topic of Los Angeles fire response to the current special legislative session scheduled to end this week. The Legislature will work immediately to secure a down payment on funding for Los Angeles wildfire response — funding that was not anticipated or included in his recent budget submission. Proposals in excess of $2 billion to begin recovery efforts are likely to be considered.
We will keep you updated as information becomes available throughout the budget process.
