Date:   June 24, 2024

Over the weekend, the Governor and Legislature announced they reached a deal for the 2024/2025 budget. One of the main sticking points in the final rounds of negotiations was around how to handle the funds generated from the Managed Care Organization (MCO) Tax.

As you recall, in January the Governor proposed maintaining the funding structure as agreed to in the previous year’s budget which would have included $6.7 billion to be used to increase Medi-Cal provider rates over three years. In the Governor’s May revise of the budget, he moved away from the agreement and shifted the $6.7 billion to help backfill the state budget to help address the budget deficit.

The Legislature pushed back on the Governor and proposed allowing for a portion of the MCO Tax funds to be used to offset the deficit in year one and a small portion in year two with most of the funds being used for Medi-Cal provider rates increases. In year three all the MCO Tax funds will be used for Medi-Cal provider rate increases. The Governor ended up agreeing with the Legislature’s proposal. The bills with the details still need to be voted on in the Legislature and the Governor needs to sign them. Given this announcement of a deal I expect the Governor to sign the budget related bills by the end of this weekend.

One of the complicating factors was the Governor asking the provider coalition, led primarily by the California Medical Association (CMA), to delay the ballot initiative they are sponsoring from being on the November 2024 ballot. The initiative would lock in place the funding structure for the MCO Tax, as agreed to largely increase Medi-Cal provider rates and would prevent the Governor or Legislature from using those monies for other purposes. The CMA and coalition declined to delay the initiative and it will be on the November ballot.

It is important to note if the initiative passes the effective date would be January 1, 2025. This means if the initiative passes the changes made to the MCO Tax funding in the budget I describe above would not go into effect. The initiative would supersede the actions in the budget. As you can imagine, the initiative will be a big focus for CMA and the coalition. California ACC has endorsed the initiative and is a part of the broader coalition supporting the ballot measure.