CHA News

State Policymakers Reach a Budget Agreement with Major Implications for Hospitals

What’s happening: This week, the 2024-25 budget and supporting legislation will be signed by the governor, ensuring the spending plan is in place by July 1, the start of the fiscal year. 

What else to know: The budget includes important changes to the managed care organization (MCO) tax and the health care worker minimum wage, while also having implications for the hospital fee program. 

Last weekend, the governor and the Legislature reached a final agreement on the 2024-25 state budget. The agreement resolves the major differences between the branches of government. Either Senate Bill (SB) 108 or Assembly Bill (AB) 108 will be passed to incorporate final changes to the budget the Legislature passed earlier this month (AB 107). SB 159 or AB 159 will enact budget-related statutory changes to health care programs. As is typical, certain decisions and budget-related legislation will likely follow in July and August.  

The budget addresses the $45 billion deficit the state was facing entering the next fiscal year, using a mix of spending reductions, revenue enhancers, drawdown of reserves, and other budget solutions.  

The budget agreement resolves most of the major health care-related issues relevant to hospitals and health systems: 

  • Backtracks on Last Year’s Agreement on the MCO Tax Rather than dedicating roughly $2.6 billion starting in 2025 to improve reimbursement for Medi-Cal providers — as agreed to last year — this year’s budget provides just $133 million for improved Medi-Cal provider payments in 2025-26, increasing to $728 million in 2026-27 and $1.2 billion in 2027-28. It switches which providers or services will receive increases, specifically adding, for example, pediatric day health centers, optometry, and private duty nursing while removing hospital services and graduate medical education. However, if voters in November approve the ballot measure to make permanent the MCO tax, spending of the revenues in 2025 and 2026 would revert to last year’s budget agreement and directed formulaically by the measure in subsequent years. Finally, the budget approves a further increase in the MCO tax, generating around $3 billion in additional state funding over three years, subject to federal approval. 
  • Further Delays Implementation of the Health Care Worker Minimum Wage The budget package includes statutory changes to delay the implementation of SB 525, which establishes a health care worker minimum wage — that varies by care setting. Legislation enacted earlier this year delayed the start date of the minimum wage from June 1 to July 1 this year to align with the state’s fiscal year. The approved budget now further delays implementation, until either state revenues are determined to be higher than anticipated or the state initiates a key step in the process for developing and implementing next year’s hospital fee program. The latter is expected to occur in the fall of 2024, making implementation of the minimum wage likely in the last quarter of this year. (The tie between the hospital fee program and the minimum wage relates to intent on the part of state policymakers to increase the fee program, which would reduce pressure on the state to pay its share of the cost for the minimum wage.) In addition, the budget incorporates technical changes to the minimum wage law, which are summarized here.  

For additional information on the budget, see CHA’s summary of major actions. Contact Ben Johnson, vice president, policy, at and Adam Dorsey, group vice president, financial policy, at with any questions.