Fifteen years ago, California’s budget was in the red as the Great Recession caused drastic losses in income tax revenue and then-Governor Arnold Schwarzenegger and lawmakers desperately tried to balance their books.
One of their many tricks was the maneuver to get more money for health care from the federal government. The state would impose a tax on managed care health insurance organizations – Kaiser Permanente was and is by far the largest – and use the proceeds to support Medi-Cal, the government’s health care system for the poor, thus qualifying for more federal subsidies.
Since then, the Managed Care Organization Provider Tax has been used sporadically in one form or another.
Last year, after lengthy negotiations, a comprehensive deal was reached that would raise $19 billion from a new tax and add another $16 billion in federal funds. It would expand benefits for Medi-Cal recipients – more than a third of the state’s 39 million residents – while increasing payments to doctors, hospitals and other health care providers.
This will relieve the state budget, which is once again plagued by deficits, by several billion dollars.
The deal began to crumble just months later when Gov. Gavin Newsom admitted the state was facing even larger deficits due to a massive error in forecasting revenues, and he wanted to take a much larger share of health tax revenue to make up the deficit. The final budget plan, unveiled in June, relies on a large portion of health spending.
In the meantime, however, the coalition that negotiated the 2023 deal had passed a bill for the November ballot: Proposition 35. This would make the health tax permanent, but would limit the use of funds for non-medical budget items to a few billion dollars, with most of it going toward expanding Medi-Cal services and reimbursing providers.
In fact, Proposition 35 would put the state budget back into the red by depriving it of up to $12 billion over the next few years that Newsom had assumed would be available in his budget proposal.
The governor makes no secret of his disdain for this measure, even though he has not yet officially spoken out against it.
“This initiative hinders our ability to have the flexibility that is required in the current situation,” he recently told reporters. “I have not publicly opposed it, but I am expressing an opinion. Perhaps you can read between these many, many lines.”
This leads to a strange group of enemies.
On one side are the big medical companies, the major players in California’s largest industry, who are able to spend tens of millions of dollars to get the bill passed. On the other side are the governor, smaller medical supply companies and non-medical interests that rely on the state budget.
Proponents of Proposition 35 argue that tax dollars from health care reform were always intended to improve health care, not to balance the budget.
“The best way to protect our Medi-Cal program and these vulnerable patients is to invest in it,” Jodi Hicks, co-chair of the initiative coalition and president of Planned Parenthood Affiliates of California, told CalMatters. “Any day that a patient can see a doctor is a good day, and we need to invest and make sure that’s the case for as long as possible.”
There are two other aspects to the simmering conflict. First, federal officials who must approve exemptions from the health tax in order for it to qualify for federal funds are skeptical about using the money for non-medical purposes.
The other reason is that Newsom’s term ends in a few years, and the closer that date gets, the less influence he will have on events. He’s not a lame duck yet, but passing Prop. 15 despite his objections would be a symbolic step in that direction.
