CENTRAL VALLEY – California’s implementation of Proposition 35, a measure designed to increase payments to doctors and healthcare facilities treating low-income patients, has been delayed due to a missed federal deadline, raising concerns at the local level about the impacts it could have on Medi-Cal patients.
Prop 35 is a state measure that dictates how the state manages the Managed Care Organization (MCO) tax, a key funding mechanism for Medi-Cal, California’s Medicaid program. The MCO tax allows the state to generate revenue by taxing managed care organizations, which in turn helps harness additional federal funds to support Medi-Cal.
The proposition was designed to increase payments to doctors and healthcare facilities treating low-income patients. However, its implementation for this quarter has been delayed due to a missed federal deadline.
According to an April 1 report from CalMatters, this has occurred because the state failed to submit a necessary State Plan Amendment to the Centers for Medicare and Medicaid Services by March 31. This is required to secure millions in federal funds for the Medi-Cal program.
According to CalMatters reporter Kristen Hwang, who has been following the topic, this delay means that, for the first quarter of the year, healthcare providers will not receive the promised rate increases. Not only that, the state of California cannot claim federal matching dollars retroactive to Jan. 1, 2025. Hwang further clarified in emails to Mineral King Publishing that the exact amount of federal funds lost is unclear, but it is estimated to be in the millions.
The delay came about partly due to unfilled positions on an advisory committee established by Prop 35 to oversee the spending of these funds, according to reports from CalMatters. Although the committee had enough members to meet legally, one position remained unfilled, contributing to the delay.
Not only that, but the Department of Health Care Services (DHCS) argued that there were no specific deadlines in the legislation, said Hwang.
Local impacts
In a letter to Gov. Gavin Newsom, Assemblywoman (AD 33) Alexandra M. Macedo, who represents parts of Tulare County, highlighted the impacts this will have on Medi-Cal patients, particularly in rural and impoverished areas like the Central Valley. In the region, many residents are Hispanic/Latino and live below the federal poverty level.
“Residents living in poverty and those in rural communities deserve your attention…I ask you, as Governor, to provide a Proposition 35 implementation plan to ensure that the will of the voters is followed, and that the poor and most vulnerable will have access to the medical services that you have promised them year after year,” Macedo stated in the letter.
As noted in Macedo’s letter, 45% of Central Valley residents live on an income that is 200% below the federal poverty level – approximately $31,000 annually. CalMatters also reported that low reimbursement rates have made it difficult for providers to operate in these areas, which has limited access to care.
Not only that, but according to Adriana Ramos-Yamamoto from the California Budget and Policy Center, the county is home to a significant population of low-income immigrant residents, many of whom rely on Medi-Cal for healthcare.
The Public Policy Institute of California (PPIC) found that in 2023, 27% of California’s population was made up of people born outside the United States, which is the highest percentage of any state and more than twice the national average. The PPIC also reported that nearly one-third of Californians are living at or near the poverty line. Among foreign-born residents, the poverty rate was 17.6%, compared to 11.5% for those born in the U.S. For undocumented immigrants, the poverty rate was even higher, at 29.6%.
“Undocumented Californians play a very vital role in stimulating our economy,” Ramos-Yamamoto said. “People who have been historically excluded from our safety net programs, like undocumented immigrants, have always needed health care, nutrition assistance and other services.”
According to the California Budget and Policy Center, undocumented Californians alone paid nearly $8.5 billion in state and local taxes in 2022, supporting public services and infrastructure that benefit all residents. The Institute on Taxation and Economic Policy (ITEP) reported that undocumented immigrants paid $96.7 billion in federal, state and local taxes in 2022.
It was also noted that despite their contributions, many immigrant residents face barriers to accessing healthcare and other essential services. According to Ramos-Yamamoto, if Prop 35 is not implemented, it could further impact these communities who rely on Medi-Cal.
Broader impacts
Adding to the uncertainty of healthcare coverage, some Republican leaders at the federal level have expressed interest in cutting funding to Medicaid, which could further impact California’s Medi-Cal program.
“The cuts that Republican leaders, both the House and Senate and the Trump administration want to make for Medicaid … is around $880 billion over 10 years,” Ramos-Yamamoto said. If that goes through, she said the proposal could potentially negatively affect Californian’s health coverage.
However, as Ramos-Yamamoto pointed out, “that’s not something that would necessarily impact the provider tax and the Managed Care Organization tax.”
Ramos-Yamamoto explained that while there are proposals to cut Medicaid funding, these cuts would not directly affect the MCO tax itself. The MCO tax is a separate mechanism that California uses to generate revenue for its Medi-Cal program by taxing managed care organizations. This tax helps the state draw down additional federal funds to support Medi-Cal.
The potential Medicaid cuts are about reducing the overall federal budget for Medicaid, she said, which could impact the amount of money states receive for their Medicaid programs.
However, the MCO tax is specifically designed to leverage federal matching funds, and its structure and approval are separate from the general Medicaid budget cuts. Therefore, changes to Medicaid funding do not automatically change the rules or the effectiveness of the MCO tax in drawing federal funds. If federal policymakers were to alter the rules governing the MCO tax, it could reduce the funds available for these healthcare investments, impacting Medi-Cal provider payments, rate increases and other improvements, said Ramos-Yamamoto.
Ramos-Yamamoto said from her perspective, Republican leaders’ push for Medicaid cuts is part of a broader agenda to extend tax breaks for the wealthy, posing a threat to essential healthcare services for vulnerable groups, including children, pregnant individuals, seniors and people with disabilities.
She further explained that while the Trump administration could potentially change the rules regarding the MCO tax, which might affect its renewal, the tax is currently set to remain in effect until the end of 2026. Thus, if policymakers wish to extend or renew the tax beyond that point, they would need to secure federal approval and funding.
Although no specific proposals have been seen from the current Trump administration, Ramos-Yamamoto highlighted that any changes could significantly limit the funding available for healthcare investments intended under Prop 35.
To safeguard and enhance Medi-Cal, Ramos-Yamamoto suggested that state leaders should focus on increasing revenues by making the tax system more equitable. This could involve reassessing tax breaks that currently benefit wealthy individuals and large corporations.
She also explained that as the demand for services and associated costs continue to rise, the resources allocated to meet these needs must also grow. To do this, Ramos-Yamamoto suggested that lawmakers pursue long-term, sustainable funding solutions to ensure the protection of Medi-Cal for future generations, particularly as California’s population ages and healthcare costs increase.
Ramos-Yamamoto also explained that while reducing benefits or restricting eligibility could be considered if federal cuts proceed, these should be last-resort measures.
“I would see these (expansions) as improvements. … So by making the program accessible, I don’t know if that’s necessarily that more people are needing healthcare. There’s always been a need for healthcare, and there’s always been a need to improve these systems,” Ramos-Yamamoto said.
