CALIFORNIA – A new proposed piece of legislation, Proposition 35, is on the ballot this November and, if it is approved by voters, it has potential to change how the state distributes its Medi-Cal funds going forward.
One of the main benefits of Prop 35 is that it will increase reimbursements for healthcare services covered by Medi-Cal. As it is, hospitals across the nation are at risk of going out of business as they are not allowed to deny patients care but are not always adequately paid for providing those services; this is even more true with Medi-Cal reimbursements, which are not always paid back in full by government entities.
From the city of Porterville, the Sierra View Medical Center (SVMC) hospital is a supporter of the proposition because “it promises significant benefits for our community in Tulare County,” said SVMC CEO and President Donna Hefner in written statements to Mineral King Publishing.
“With over 60% of our patient population relying on Medi-Cal, Proposition 35 is critical for ensuring sustainable funding that allows us to continue providing essential healthcare services,” Hefner said.
While hospitals and public officials across the state are backing the proposition because it would increase Medi-Cal reimbursements to facilities struggling to stay open, like hospitals, others are worried about the ways this could affect Medi-Cal services in addition to the state’s budget.
Increase in reimbursements
Local officials such as the Tulare County Board of Supervisors unanimously voiced their support for Prop 35 at a meeting on Sept. 17. During the meeting, Chairman Larry Micari (District 1), who has advocated to secure funds for local facilities at-risk of potential closure, explained that centers like Kaweah Health have struggled because they have received “pennies to the dollar” for the services they were providing.
He recalled having a conversation with representatives from the hospital, where he was told that a $100 procedure receives $12 in reimbursement.
“Even though I’m adamantly against adding more taxes, this is something I think we need to support,” Micari said at the Sept. 17 meeting. “I worked with Senator Shannon Grove. We got $20 million to (the hospital), but that’s a drop in a bucket.”
The supervisor was making reference to a circumstance in August 2023, when he and Sen. Shannon Grove (District 12) secured over $26 million in funds from the Distressed Hospital Loan Program. The program was created to provide loans for nonprofit and public hospitals on the brink of collapse. Through the loan program, the two were able to help secure $20.8 million for the Visalia Kaweah Delta Health Care District and $5.5 million for Ridgecrest Regional Hospital.
During the time of the report, Grove noted that the closure of the Madera Community Hospital, which shut down in January 2023, was a warning to other hospitals in the state of a critical financial crisis, especially in rural communities. According to previous reports from Mineral King Publishing, Dan Lynch, the Emergency Services Director of Fresno County, noted a significant factor of the hospital’s closure was because Medical-Cal reimbursements from the state are not enough to sustain local facilities.
Prop 35 is looking to address this by increasing Medi-Cal reimbursements by changing how the state manages its budget. Right now, the state has the Managed Care Organization (MCO) tax to go into its general fund. This allows for the state to use that money to offset any shortfalls in the general fund and cover all of its financial needs year-to-year.
A representative from the Protect our Healthcare Coalition, which funds the campaign “Yes on 35,” explained that the MCO tax was always intended to fund Medi-Cal. And by depositing it into the general fund the money has not always gone to Medi-Cal funding.
“I’ve always supported increasing medical funding and lowering healthcare costs for low-income communities like those in my district,” Assemblyman Devon Mathis (District 33) stated in written statements to Mineral King Publishing. “It’s also important to ensure that we do everything we can to keep Valley hospitals from shutting down while preventing the state from redirecting MCO tax revenues for non-healthcare purposes.”
However, the proposition has not been well-received by all. In a CalMatters report on July 1, 2024, Diana Dooley, who served as California’s secretary of Health and Human Services under former Gov. Jerry Brown, stated she believed Prop 35’s approach to the budget is “really dangerous.”
According to the report, because the tax that Prop 35 implements has to be approved by the federal Centers for Medicare and Medicaid Services, this legislation could put California’s funding at risk as the state has already been warned about “exploiting the system” because of how much the state relies on the tax reimbursement policy. Dooley noted the federal government has already tried to get rid of this funding stream in the past, even under the Obama Administration.
“We have to dance pretty carefully in our relationship with the federal government,” Dooley said.
The trade-off
While it’s true that the legislation will increase Medi-Cal reimbursements, Prop 35 comes with its share of sacrifices as well. In the case of the state operating with a budget deficit, like the current deficit in the fiscal year 2024-25 budget, the lack of flexibility could result in the state having to find other ways to compensate to fund other services.
“One thing that we have pointed out as an issue with this proposal is that it would result in less flexibility in the state budget,” Senior Budget Analyst of the California Budget and Policy Center Adriana Ramos-Yamamoto said in an interview with Mineral King Publishing. “When we are facing a budget deficit, that could increase taxes or it could be harmful to other core programs and services that support Californians.”
This means the state’s budget would have to compensate for the deficit by either increasing taxes or cutting other programs. Ramos-Yamamoto continued to say that during times of budget deficits, other critical programs and services which support low-income residents are at risk of being cut, such as subsidized child care, food assistance programs and income support.
Ramos-Yamamoto further explained that, as a result, residents as well as local and state officials would be less likely to advocate for state grants for important community projects. An example of these efforts can be seen through an official like Sen. Melissa Hurtado (District 16), who has advocated for grants to enhance public safety services in Central Valley communities. Hurtado has secured funds for fire stations in communities like Dinuba, Farmersville, Lindsay and Woodlake.
This isn’t the only limitation Prop 35 could put on people’s quality of life. The spending plan for the MCO tax under Prop 35 prioritizes primary care and emergency/hospital services over others. According to CalMatters, Prop 35 only requires Medi-Cal to cover 10 services, while the current legislation requires Medi-Cal to cover 14; thus, the proposition looks to redirect coverage from services it doesn’t consider as essential. One of the services that could lose Medi-Cal coverage is Congregate Living Health Facilities, which is a service that includes skilled nursing facilities.
These facilities include nursing homes, mental health facilities, residential facilities for those with disabilities and more. The Central Valley and other rural areas specifically have a high number of skilled nursing facilities. According to the Tulare County Health and Human Services Agency, there are 18 licensed skilled nursing facilities in Tulare County alone.
Another potential drawback of Prop 35 is the impact on the health coverage of children. According to CalMatters, almost 80% of children who are dropped from coverage every year lose insurance because of missing paperwork, wrong addresses or other procedural red tape – not because they no longer qualify for Medi-Cal.
However, with Prop 35, funds supporting continuous coverage for children ages 0-5 and pediatric health centers would be redirected.This could have a large impact on Tulare County specifically. According to the Department of Healthcare Services, roughly half of residents in Tulare County are enrolled in Medi-Cal.
It should be noted that even though these services are not deemed eligible for Medi-Cal reimbursements under the policies of Prop 35, that does not mean the state’s administration will choose not to continue them. According to the Protect our Healthcare Coalition, Prop 35 includes $2 billion of discretionary spending for the state to use to decide which healthcare programs need to be covered. While the state is not required to cover these services, it could still choose to spend those discretionary funds on the aforementioned services.
