In late June, the Legislature and governor approved the 2023-24 state budget authorizing $310 billion in spending, including $226 billion from the General Fund. While refinements to the budget will continue to be made through the rest of the summer, the action resolves the bulk of the budgetary issues that state policymakers faced this year.
Despite a nearly $32 billion budget deficit entering the fiscal year, state policymakers approved a budget with a commitment of historic proportions to improve access to Medi-Cal by increasing payment levels for providers, no ongoing cuts to core programs, and no major tax increases outside of the reauthorized managed care organization (MCO) tax.
Assembly Bill (AB) 102 houses the main provisions of the budget agreement, while the statutory changes implementing the health care-related components of the budget can be found in AB 118 (general provisions) and AB 119 (MCO tax reauthorization).
Here’s a look at some of the major health care-related provisions in the 2023-24 budget:
The MCO Tax – A Historic Commitment. The approved budget reauthorizes the state’s MCO tax and, for the first time, dedicates most of the revenues to addressing longstanding shortfalls in Medi-Cal payments. Pending federal approval (which appears likely), the tax will be in place from April 2023 through the end of 2026. Over its lifespan, it will generate $19.4 billion in revenues available for state purposes. While the MCO tax will be in place for nearly four years, the revenues will be spent over six years, with most of the provider payment increases beginning in 2025. Of the total resources generated, $11.1 billion will support provider payment increases and the remaining $8.3 billion will be used to address the state deficit.
In 2024, $275 million in MCO tax funding will support hospitals in the form of a one-time $150 million allocation to the Distressed Hospital Loan Program, $75 million for graduate medical education (GME) —a portion of which likely will go to clinics — and $50 million to help small and rural hospitals prepare to comply with the state’s seismic standards. Primary care, maternity care, and non-specialty mental health providers will also receive a rate increase in 2024, at a total cost of around $500 million (including federal matching funds).
Starting in 2025, we estimate that hospital payments will increase by about $1.7 billion annually. This estimate includes the federal Medicaid matching funds that will support the provider payment increases, and specifically includes:
- $640 million for hospital emergency departments (EDs)
- $610 million for outpatient services
- $380 million for public hospitals
- $75 million in continued funding for GME
In addition, we estimate that nearly $5 billion in total funds will support other provider payment increases, including for primary and specialty care, ground ambulance providers, family planning services, and workforce for health care entities with labor management committees. Finally, $750 million of the nearly $5 billion will be dedicated to addressing throughput issues for patients in a behavioral health crisis, a portion of which is intended for hospital EDs.
Over the next year, the state will work to develop detailed payment methodologies for the provider payment increases that begin in 2025. Throughout this process, CHA will work with state policymakers to ensure the funding goes where it is intended and protect it from delay or diversion in case the state budget situation worsens. For more information, please see CHA’s FAQs on the MCO tax.
Expands Whole Child Model (WCM) to Additional Counties. Under WCM, California Children’s Services are delivered through county-operated Medi-Cal managed care plans, rather than fee for service, in 21 counties. Earlier this year, the governor proposed to expand WCM to 15 new counties. However, under the final budget, the expansion was limited to 12 additional counties with county-operated health plans: Butte, Colusa, Glenn, Mariposa, Nevada, Placer, Plumas, San Benito, Sierra, Sutter, Tehama, and Yuba.
Establishes New Reporting Timelines for Newborns. The budget includes statutory changes requiring providers that participate in Medi-Cal presumptive eligibility programs to report on the birth of a Medi-Cal eligible newborn within 72 hours after birth, or one business day after discharge, whichever is sooner. This change applies regardless of birth setting and is intended to prevent coverage gaps and delays in care.
Maintains and Builds Upon Recent Progress in Bolstering the State’s Health Care Programs. Despite a nearly $32 billion deficit, the budget protects commitments made in the last several years to expand health care coverage and make that coverage more meaningful.
- Maintains Comprehensive Medi-Cal Coverage Expansion for Undocumented Adults. Last year’s budget authorized the expansion of comprehensive Medi-Cal coverage to undocumented adults ages 26 through 49 — the last age group of undocumented immigrants without such coverage. The approved budget maintains the expansion as scheduled, with an implementation date of January 2024.
- Supports Continued CalAIM Implementation. California Advancing and Innovating Medi-Cal (CalAIM), is a multi-year Medi-Cal reform effort aimed at improving access to health care and supportive services, particularly for Medi-Cal’s highest-risk, highest-need beneficiaries, and streamlining how care is arranged and paid for. The budget maintains CalAIM implementation as scheduled and provides new funding to implement the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) demonstration, assist county behavioral health plans convert to a new payment methodology, and — starting next year — add transitional rent services as a Community Supports benefit.
- Funding for Behavioral Health Modernization Planning. Earlier this year, the governor and legislative leaders announced a $6.38 billion bond and proposal to transform the Mental Health Services Act (MHSA) for the March 2024 ballot. The proposal includes five solutions to transform California’s behavioral health system: reform the MHSA funding structure —which brings in over $3 billion per year — to focus on populations that are most vulnerable and allow funding for substance use disorder treatment; increase the focus on outcomes, accountability, and equity; build a workforce that reflects the state’s diversity; expand housing and treatment in community-based settings; and provide housing for veterans experiencing behavioral health challenges. While the legislation — Senate Bill 326 (Eggman, D-Stockton) and Assembly Bill 531 (Irwin, D-Thousand Oaks) — placing these reforms on the March 2024 ballot continues to work its way through the legislative process, the budget provided $40 million in resources for the Department of Health Care Services to continue the state’s planning efforts related to these reforms. See governor’s fact sheet.
- Furthers Investment in Reproductive Health with New Grant Opportunity. The budget includes $200 million in 2024-25 to fund capacity and access-supporting grants to qualified safety-net providers of reproductive health services. The state is currently seeking federal approval for the grant program, California’s Reproductive Health Demonstration, as a Section 1115 Medicaid demonstration project. As proposed, eligible grant applicants include clinics affiliated with disproportionate share hospital facilities, rural hospitals, small hospitals (less than 50 beds), and critical access hospitals that are not part of a larger system that provide a broad spectrum of sexual and reproductive health services.
- Improves Affordability in Covered California. The budget provides $165 million in annual ongoing funding to create a new state cost-sharing subsidy program for Covered California consumers. Starting in 2024, deductibles will be eliminated and copays will be reduced for enrollees in the affected Covered California plans. The program will be funded with revenues from the state’s Individual Shared Responsibility Penalty, California’s individual health insurance mandate established after the federal mandate was effectively eliminated in 2019.
- Avoids Most Funding Delays for Health Care Workforce Programs. Last year’s budget included $1.5 billion in new health care workforce funding, around $1 billion of which was scheduled for expenditure across 2022-23 and 2023-24.In January, the governor proposed to delay nearly $400 million of the funding from the first two years to subsequent years. The final budget restores most of this funding. As a result, the only delay beyond 2023-24 that remains is a deferral of $115 million for the community health worker workforce to 2024-25 and 2025-26. This leaves only $15 million to be spent in 2023-24 for this purpose.
Imposes Several Limited Budget Solutions Within the Health Care Space. While health care spending was largely spared from the chopping block, the budget does include several health care-related budget deficit solutions. These include:
- The $8.3 billion from the MCO tax discussed earlier will be used to address the budget deficit (of this amount, $3.6 billion will be used in 2023-24).
- Delaying the elimination of the two-week checkwrite hold that had been scheduled for 2022-23, saving the state $378 million in the General Fund. This is now scheduled for 2024-25.
- Delays of $481 million for the Behavioral Health Continuum Infrastructure Program and $235 million for the Behavioral Health Bridge Housing Program to beyond 2023-24.
- A shift of $196 million from the state General Fund to the Mental Health Services Fund, which allowed the state to avoid the health care workforce funding delays described above.
- Loans totaling $230 million to the General Fund from the Hospital Building Fund (which supports the state’s seismic compliance efforts) and the California Health Data and Planning Fund (which supports the Department of Health Care Access and Information’s health care data collection, analysis, and reporting efforts).
Although painful budget cuts were largely avoided in the health care space this year, without an upturn in the state’s economic performance, budget deficits appear likely in future. Should a significant budget shortfall materialize as predicted, hospitals and other stakeholders will have to be vigilant in defending the important progress that has been made or promised to help protect access to health care for all Californians.
The Legislature took early budget action on AB 112, which establishes a distressed hospital loan program substantially similar to AB 412. The trailer bill immediately appropriated $150 million to provide loans to distressed hospitals meeting specified criteria. The governor signed AB 112 on May 15. Subsequent budget action added an additional $150 million to the fund, for a total of $300 million. The Department of Health Care Access and Information announced close to $300 million in awards to 17 hospitals on Aug. 24.