California Voters Approve Using Existing Tax for Higher Medicaid Rates

Voters in California approved Proposition 35, which makes permanent a tax on Managed Care Organizations (MCOs) and locks in much of its revenue for rate increases for many Medicaid providers, hospitals, and clinics. The measure was drafted and funded by several large health care organizations that were unhappy with how the governor and legislative budget writers had been using the revenue for projects that were not health care related.

The initiative continues what’s known as the MCO Tax beyond its planned 2027 expiration date if CMS continues to approve a state waiver to draw down federal matching funds. The revenue will lock in nearly $40 billion in future Medi-Cal spending to prioritize some medical services, rural hospital access, clinics, and medical ground ambulance providers over other services such as increased coverage for children services or behavioral health programs.

Those priorities were negotiated in private by a coalition of health care organizations including the California Medical Association, the California Hospital Association, and Planned Parenthood. They were able to assemble a $50 million campaign in part due to major backing from Colorado-based Global Medical Response, Inc., a private equity-backed ambulance company. Gov. Gavin Newsom (D) and many legislative leaders were critical of Proposition 35, arguing that it will take away much needed flexibility to shift the MCO tax funds toward more pressing priorities for the state.