Senate Standing Committee on Budget and Fiscal Review

Okay, still no quorum. Okay, so we'll be hearing one Bill today. Assembly Bill 136, relating to the managed care organization tax and AB 136 is one component of the Governor's Budget and part of the Senate's plan to shrink the shortfall. So we're taking early action on it in addition to one other item in the education Committee. And this will be a first step towards bringing our budget into balance, which will be a lot of work between now and June. And this is step number one.

So today we'll start with the Administration, which will describe this action in detail. The Bill will allow California to draw down nearly $1.5 billion of additional federal matching funds to help offset the non federal share of expenditures in the medical program by relieving the General Fund of costs relating to medical. These changes to the MCO tax, as well as the use of Reserve funds from the existing tax, will help shrink the shortfall by $3.8 billion.

As we're aware, we have a huge shortfall that will require a lot of hard decisions in the coming months. And again, today is step one. I want to thank the Administration and our partners in the Assembly for working to come to agreement on this proposal. So before we begin, Mr. Vice Chair, do you have any comments? Senator Niello, excuse me? Thank you. Okay. With that said, we'll now go to Erica Lee from the Department of Finance to present this proposal.

Thank you. Good afternoon. Chair Wiener, Vice Chair Niello and Members of the Budget Committee. Erica Lee with the Department of Finance. I'm here to present a portion of the administration's managed care organization, or MCO, tax proposal, which is one of many significant solutions that were included in the Governor's Budget. As you will recall, I was here testifying in front of this Committee on the Projected Budget Shortfall, which was estimated to be roughly $38 billion at the Governor's Budget.

In light of this significant shortfall, the Administration has asked the Legislature to take early action to request the Federal Government approve an amendment to the recently approved MCO provider tax. So what does this mean? Specifically, the Administration proposes to modify the MCO tax, which was authorized pursuant to the 2023 Budget act and approved by the Federal Government back in December of last year for the period of January 12024.

So beginning this year through December 31 of 2026, the approved MCO tax that the current approved MCO tax allows the state to draw down 19.4 billion in total funding, some of which will go towards increased provider rate, provider rates, and another bucket will go to support the General Fund and the medical program. The administration's current proposal would draw down an additional 1.5 billion to achieve a total of 20.9 billion.

I'm sorry, because we do have a quorum, and I've learned over the years to strike while the iron is hot. So my apologies. We will establish a quorum.

[Roll Call]

Okay, we have a quorum. Thank you. You may proceed.

Again. This proposal would draw down an additional 1.5 billion for a total of 20.9 billion in federal funds. This additional 1.5 billion is proposed to support the medical program through 26-27 which will help maintain existing services and minimize the need for reductions in the medical program. The proposal does not impact the targeted rate increases. I just want to highlight that the approved MCO at the 2023 budget has not changed in regards to rate increases and the deal that was made through that budget.

I know that's important to highlight, so I wanted to do that. For the Committee to be able to collect tax revenues retroactive to this year, the proposal needs legislative approval no later than the end of March. This allows the Department of Healthcare Services to go and seek that approval from the Federal Government. We appreciate the Senate's early movement on this particular proposal. It's an important solution.

However, as noted, the magnitude of our budget shortfall is such that it's necessary for us to come together with an even bigger and broader early action package so that we can begin to solve this problem now. And as such, we are supportive of the Senate's shrink, the shortfall plan that was released last week.

We believe it is a significant move in the right direction to address the budget shortfall, and we look forward to working with the Senate as well as with the Assembly to continue working on that bigger, broader early action package. Thank you very much. I'm here with my colleague to respond to any questions.

Great. Thank you very much. And I just want to note that the LAO is also here for any questions that may come up with that said, colleagues, are there any questions for the Department of Finance or for the LAO on this issue? Yes, Senator Nielo.

So the proposal is troubling because of significant change from the direction of this action in the budget year 23-24 there is nothing extra going to providers. It's all going to the General Fund.

And in fact, from the 23-24 proposal, if I understand the numbers correctly, the amount to providers is being just about cut in half from, well, not quite half, but from 11,000 down to about 7000. I think the number is 11 million down to 7 billion. The numbers are getting so big, I'm having a hard time keeping track of them.

But I'm not sure that I see, given the shape of our health system in the first place, where systems could go, I don't understand the logic for that significant difference in where these funds are going.

Senator, let me just clarify that the act before this Committee is only to ask for the 1.5 billion in additional MCO. I think you are referring to the other part of our larger proposal, which is using some of the funds that would go into a Reserve in the prior year and the current year, which total about 3.1 billion, and moving that into to be used to support the General Fund.

I again want to highlight that we made commitments to increased provider rates that we continue to stand behind. The Reserve was set aside to continue funding those same higher provider rates for an additional year. What we will have to do is come back and discuss where that funding will come from, if it's the renewed another MCO tax at that date or if it's another Fund. But the Administration is committed to paying those higher provider rates.

We do acknowledge the budget shortfall that is before us, and that is the reason for the broader use of the Reserve as well as this additional 1.5 billion.

You acknowledged the budget shortfall, but if I understand correctly, you still maintain that it's the $35 billion shortfall that the Governor cited in January.

So it was about 38,000,000,000 at the Governor's Budget. And I would just say that the Department of Finance provides a forecast twice a year, once at the Governor's Budget and again through the May revision when we have our cash receipts in hand after April 15. I stated this earlier in the larger budget overview in January, when we were building the 2023 budget, we didn't have that data handy. And so we forecast to the best of our ability based on that.

And obviously, the revenues came in short of what we were projecting. And that is part of what we're dealing with now. We are looking at reduced revenues on a monthly basis. At this point. We're tracking that. We have a monthly bulletin that we put out in regards to cash receipts, and perhaps that's what you're referencing as well, or perhaps you're referencing the number that the LAO has come out with.

But we only have a forecast twice a year, and we will update that at the may revision to reflect the cash receipts that come in from November through April.

Well, Wayne Gretzky famously said, you shoot the puck to where it needs to go, not where it is. And seems to me that we're still shooting for a deficit that is not evolving and changing, which we clearly see that it is, your timing of forecast notwithstanding.

Thank you, Senator Niello, Senator Menjivar, followed by Senator Laird and Senator Roth.

Thank you, Mr. Chair. This falls directly under sub three. And last year I was very vocal in saying no dollars out of the MCO tax to the General Fund. It was a different situation back there. And, Senator, to your point, we're not touching any of that right now.

I'm thrilled that we got this opportunity to be able to bring down 1.5 additional funding on top of the money that for the next three years is going to come out to like about $21 billion that we're going to be able to play with in different provider reimbursement rates. Some of the provider reimbursement rates already started this year, but it was already in honor plan for most of the initiatives to start the following year in 2025.

So that is still on the table to see if there's flexibility, which I've also been vocal about, that there should be flexibility in rearranging some of those dollars within the MCO tax. But given our budget deficit right now, $1.5 billion to offset part of that budget is going to be ideal. And also utilizing the extra money that we didn't use for this year's that we already had is we are in a very lucky situation to be able to tap into this.

And I urge my colleagues to support this measure, because if we don't support $1.5 billion, where else are we going to find that? And that's just going to be extra cuts. This is dollars that we didn't account for in any of our programs so just urging that vote.

Thank you, Senator. Senator Laird.

Great. Thank you. I was going to try the socratic method here quickly. So if there's a higher tax in this case, there's a higher drawdown that is greater than or equal to the amount of the higher tax. Is that right?

For those specific questions, I'm going to turn to my colleague Laura.

Laura Ayala, Department of Finance. Sorry, can you clarify your question?

My question was clear. If there's a higher tax, there's a higher drawdown that's equal to the tax.

Yes, we're taxing.

Perfect. I was just looking for the. Yes. And the second one is, is the provider rate increase that is included in the proposed budget. Is still included in this budget?

Yes.

Good. That was what I was hoping you'd get to. And then this would keep us from having to cut in Medi Cal because we're drawing down additional revenue.

Correct.

Okay. That's what I wanted to make clear, given the questions that were coming. That came because this is one of those rare taxes that the stakeholders support because it brings in money over and above. They're not out of pocket. There's the first provider rate increase that is in ages and that is held firm. And the choice is really between cutting and this provides extra money into this area that keeps us from cutting Medi Cal.

And then Senator Dahle and I had a rather animated exchange about this on the floor last year, and let me just repeat that. When this was first enacted and I happened to be the budget chair and Arnold Schwarzenegger happened to be the Governor, it went 100% to the General Fund. That was the precedent. And we're setting a different precedent that it goes to the General Fund to offset. But for the first time in a long time, it does provider rate increases.

And this helps us budgetarily, but does not change all those underlying facts. So that's why when we actually get through, support and oppose and everything else, I will be happy to support this.

Thank you, Senator Roth.

I'm fine with all of that. I think I got the answer to my question. Thank you very much, Mr. Chair.

Great. Any other questions? Senator Dahle?

Thank you, Mr. Chair. So just to follow up on Senator Laird'scomments, but of that 1.5 billion that goes to the General Fund, tell me how that's going to help out providers of medical, Medicaid and hospitals. Because at the end of the day, the debate is not about drawing down the money. I think we're all in favor. I voted for the Mcao tax several times, but also when Governor Brown did it. We negotiated to help our rural hospitals that had an AB 97 clawback that we were able to Fund.

And so the question is not the drawdown, it's the question of how we're spending the money. So we're putting $1.5 billion into the General Fund. Explain how that's going to help health care, because it's really about health care at the end of the day. I think that's what Senator Menjivar was talking about in the last revision. So can we talk about that 1.5 billion in the General Fund and how that's going to help health care cost and help keep our hospitals open and all those things?

Yes, Senator Dahle, I would say that the 1.5 billion is there to support the Medi Cal program so that we don't have to make those cuts. We have an additional, with the full proposal. It's actually, I think, 4.6 billion of additional funds through the additional 1.5 billion, plus that 3.1 billion in the reserves to support the General Fund. And it's specifically so that we don't have to make cuts. But I just want to go back to the cuts.

To what, though? Is it cuts to General Fund issues, or is it cuts to General Fund that supports health care?

I would say it's to support health care.

Out of the General Fund. Where do we Fund health care? That's the question that we really need to answer here. That'll be determined through the budget process. This is about authorizing the tax. This will be for June. Yeah. Well, my vote depends on where we're going to spend the money. That's why we have a Budget Committee. We're going to go through this.

And so I'm asking how the General, it stated that this tax will go to the General Fund, 1.5 million, actually, another 3 billion on top of that. How does the General Fund support health care? Because that's what I want to focus on, and that'll be a three party conversation with this. Now, I don't get to be in those parties, and I would like to know, because you exclude us, and this is my opportunity to find out if I can support this or not support it.

If it's going to help keep my rural hospitals open, then I might support it. If it's not, I may not. So I know the Democrats who run this place are going to meet with the Governor, and I'm going to be forced to vote probably no, because we don't get to engage. This is our opportunity to engage, Mr. Chair, and I'd appreciate to let them answer the question, if that's okay. Would you tell me, please, how the 1.5 or 3.6 that goes to the General Fund is going to help keep my hospitals open and Fund health care to our constituents?

Again, the 1.5 billion will go towards the General Fund. There is a hole currently identified at Governor's Budget of 38 billion, which may potentially be growing. And so providing the General Fund assistance means that we don't have to make cuts elsewhere to healthcare or to just.

Cuts elsewhere in the budget.

And going to what the chair was saying, it is a broader budget, but this is going specifically the 1.5 billion. We intend that for supporting what we have committed to through the MCO. But I would also like to point out that we have provided 300 million General Fund towards distressed hospitals, of which 150,000,000 was part of this MCO deal.

Anything else, Senator? Okay. Thank you, Senator Eggman.

Thank you. And just to stay on this point for a minute, can you talk about some of the funding that goes to hospitals and health care that is not paid for through our medical system? So what part of the health care is paid through by the General Fund?

That, again, this 1.5 billion is going, and I understand it's going to the General Fund, but we pay for some of our health care needs through the General Fund.

That is correct. And I'll turn that question to Laura.

Thank you. So the medical budget for this fiscal year, for example, is about $37 billion General Fund. That's the medical cost. So the 1.5 billion is part of that 37 billion assumes a 1.5 billion in support of the medical program. So basically, if we were not to draw down an additional 1.5 billion, our costs would go up for the General Fund, for medical by that same amount.

So it pays for specifically the MCO tax when it's not outside of the provider rate increases. It supports the payments that are made to manage care plans.

All right. And we're saying that's going to the General Fund to be able to provide that support?

Yes. Instead of using General Fund and finding it wherever this body or the Administration would find that additional 1.5 billion, we're proposing to draw down the 1.5 billion and use that instead of General Fund.

And you understand why people might think the attempt. What you're asking is that we use that as a backstop against further cuts to that health care system. We also realize the General Fund pays for a lot of things. Right. And to make sure that. That 1.5 billion is for health care and not all the other things that all the other subcommittees handle.

Yeah. Per statute, it's only allowed to support the Medi Cal program provider rate increases and to reimburse the managed care plans for their tax obligation, even though it's gone.

Going into the General Fund at this.

Collect. So technically, when we collect the revenue, it goes into a special Fund. And that special Fund is authorized to support the MediCal program only.

Okay. Senator Roth,

Sorry to belabor this. I'm just curious. Now, you said it was 37 billion. The MediCal cost portion of the General Fund?

Yes.

Does that include the federal match we received from Medicaid?

The total budget is over 150,000,000,000. So that is only the General Fund.

I see. So the 100 and something billion, that's federal plus the state match.

Correct.

I got it. So the 30 something billion is the state match to medical plus the. Well, it's the state match plus the unreimbursed portion that we have to cover. Right.

The 37 billion assumes the. Are you talking about the 1.5 billion?

I'm just trying to understand the payment mechanism. My understanding is that if it's a federally approved piece, the feds provide money, we match, or we provide money and the feds match. And then there's the unreimbursed piece, which we cover wholly, presumably out of the General Fund. Correct?

Yes.

Okay. Yes. Senator Seyarto,

I just needed to clarify the correlation between the amount of participants in Medi Cal and our budget. How many people are we budgeting to be able to cover in medical?

MediCal caseload is approximately 15 million.

Okay. Do we expect it to go above or beyond that? Because we have invited more participants in Medi Cal. And what impact is that going to have on the budget in the coming months if that exceeds what we thought it might? Well, or is that a conservative number that they picked originally?

The 15 million is what we estimate is current caseload, but that's decreasing just because of the peak that happened due to COVID-19 enrollment. So we estimate total MediCal enrollment to be decreasing overall.

And if it increases, what's the effect?

It would be additional General Fund costs.

Okay, thank you. Yes. Senator Allen.

I'm just trying to get my head around the line of questioning from Senator Roth here. 127,000,000,000 total spend on MediCal. And that includes federal and state sources. About 150,000,000,000 for medical? Okay, 150. Okay. And then 37 billion is coming out of the state General Fund.

Correct.

And so that 37 billion. So the rest is all coming from the Federal Government?

There's other funds, but most of it is federal funds.

Yeah. Okay. And what portion of the State Fund is going to the state expenditure is a combination of some form of match. So it's obviously not a 5050 match because it's significantly less than what the feds put in. And then plus the coverage for undocumented folks, is that right?

Correct.

Just so I can understand how this all fits together, how much is going to those two categories?

The General Fund, 37 billion estimated MediCal expenditures. That includes about at full implementation for the undocumented, the recent undocumented expansion. Is that what you're asking? Yeah, that is about 3 billion.

That's 3 billion, yes. That's the expansion on top of what.

It was before for the recent expansion for the adults aged 26 to 49? Yes.

And then what was it for the, I guess I'm asking how much of it are we giving as part of this match? That's part of our deal with the Federal Government, not including the undocumented folks.

In General, California receives 5050 match. Now there are some services that receive more, some services that receive less, but in General, our match is 50% from the Federal Government.

Now how's that possible when they're putting in 110, 113,000,000,000 and we're putting in 37?

Then you get into a lot of exceptions and caveats. For example, the ACA optional expansion population, we get 90% federal match. And that's about 4 million.

4 million people.

4 million people, yeah. So there's a lot of caveats.

That must be a big part of that then.

Yes.

Okay. Can you tell me how much the state is spending per year on medical that is involved in some form of federal match, whether 5050 or 90? 10 or what is our portion of money being spent as part of a federal match program for MediCal

I think we would have to follow up on the breakdown of what percentage gets a federal match, any federal match, versus what percentage is state only General Fund we'll have to follow up with.

Okay. Okay. The 3 billion is for the expansion. How much is for the, the program that was put in place a few years earlier for the young folks and the seniors?

We can follow up and see what specific estimates we have for those populations that have been, for the expansions that were implemented some years back.

Okay. All right. Thank you. Senator Blakespear.

Yes, thank you. I have some questions along the same line about the numbers. So one of the things, I understand what you were just saying is that because of the recent undocumented expansion, it's costing 3 billion more? Is that an accurate statement? 3 billion more than before it was expanded, is that right?

Okay. But then you said that there are 15 million people on medical in California and that that number is not actually changing or hasn't changed because of the recent undocumented expansion. Or can you clarify that? How many people have we added because of that expansion?

Correct.

The projected total individuals for the expansion are 700,000, but most of those individuals are already part of Medikal because they were receiving restricted scope services. So most of those individuals were already on medical even before the expansion. But the estimate is that approximately 700,000 individuals would switch from restricted scope to full scope MediCal.

Okay, is 700,000 the amount that we expect to be the end number, or is that the number we're at because it wasn't open enrollment period only like a six week period from January to mid February or something? That was very limited.

So at a high level, the Medi Cal caseload increased significantly during COVID and the public health emergency has ended. So counties are now having to redetermine eligibility for all individuals on Medi Cal. And that's why overall, at a high level, caseload is projected to decrease because individuals will have to go through the redetermination and the open enrollment for healthcare is not related to it doesn't impact the expansion because the expansion took effect in January.

And for all those individuals that were already on MediCal, they were just automatically switched to full scope expansion. Full scope benefits instead of restricted scope.

Okay. So we expect that at least about or somewhere in the range of 700,000 people signed up for medical during the pandemic and now are somehow not eligible anymore. They make more money.

Or if you're referring to just those who are undocumented, yes. But more than 2 million signed up total for Medi Cal. The Medi Cal caseload grew by more than 2 million during the pandemic.

Okay. No, I wasn't talking about undocumented. I was talking about everybody. So more than 2 million people signed up, and we're seeing this attrition as they're determining eligibility. Okay. Because it seems unlikely that large numbers of people have all of a sudden started making so much more money that they don't qualify for Medi Cal. It's that the eligibility criteria is restricted back down. Is that accurate?

I would say the eligibility criteria is the same. It's that previously there was no eligibility determinations being done during the pandemic. They were on pause. So there's always natural attrition and disenrollment for different reasons.

Okay. And so if the numbers of people who are receiving MediCal is not changing that much from 15 million, why is it costing 3 billion more?

Sorry. Jason Constanturos with the LAO. So, as the Administration noted, many undocumented individuals were already on Medikal, but were only eligible for a limited number of services, emergency related services and pregnancy related services. So things like other types of primary care and specialty care, they weren't eligible to have that covered. The expansion made them eligible to have those costs covered. So, in effect, while many of those people were on MediCal, they're having more health care services covered. That's what primarily drives the increase in cost associated with the expansion.

Okay. But I've heard the argument that overall health care costs go down when people have insurance, primary care insurance, and preventative care. So are we seeing that and projecting that in our numbers at all?

To my knowledge, that estimate does not factor in any savings associated with that. And I'm not aware of any analysis that's been done to track that information. But that's something the Legislature could track in the future as we get more information and data on utilization of.

Okay, thank you very much. Thank you, Senator Eggman.

We could expand coverage, but we still need access. And if people don't have providers and access, then they don't get those preventative. And as we've been beating this issue, I just want to say Ms. Ayala was one of my students, so it is not her lack of being prepared struggle. This is an incredibly complicated topic.

Thank you. Okay. On that, I don't see anyone else, so we will now move to public comment. For anyone who wants to make public comment, you can line up behind the microphone, and I would ask to keep your comment, if you can, to about a minute. Great. Yeah.

Thank you, Mr. Chair Members. Nick Louizos with the California Association of Health Plans. Our Members in the commercial market and public programs are the ones that are paying the tax and will be responsible for distributing the associated targeted rate increases. We supported the deal last year because it was affordable to premium payers, and we're finally seeing an MCO tax used to supplement and not supplant resources in the Medi Cal program. So it was going to increase primary care, specialty care, and the like.

We're pleased that the budget is honoring those spending commitments, and we're also supportive of the budget proposal to increase the Medi Cal managed care component of the MCO tax to generate additional revenue during this budget crisis. At the same time, we do urge Legislature to ensure that the MCO tax funds be directed to the Medi Cal delivery system as intended in last year's deal, and not to program areas unintended by last year's budget and where multiple separate funding sources already exist.

And our Members are currently working with the Department of Healthcare Services, try to effectuate those targeted rate increases as we speak, and we look forward to further discussions on that matter. Thank you.

Next. Speaker.

Good afternoon. Linda Nguy with Western Center on Law and Poverty. We support a larger, accelerated MCO tax, which brings significant needed revenue that should be used to protect the safety net that low income Californians desperately rely on. Thank you.

Thank you very much. Any additional public comment? Okay, seeing none, public comment is closed. We'll bring it back to the Committee. Mr. Chair, I would move AB 136. Okay, we have a motion by Senator Laird, and that is a motion to pass AB 136 to the Senate Floor. Any final discussion? We have a motion by Senator Laird, and with that, we will call the roll. Senators Becker. Derazzo, your mic is off. Call the roll. Your mic was off. No one could hear you. Okay. Senators. Wiener?

[Roll Call]

We're waiting for a number of Members, including from the Housing Committee, and we will open the roll when they arrive. We're going to go into recess until more Members arrive, at which point we will reopen the roll. [Roll Call] Okay, we'll put it back on roll and go back into a hopefully brief recess. Thank you. No problem.

[Roll Call]

Okay, we're going to put it back on call and briefly recess. Promise. Okay, we're going to come back from recess. Okay, let's open the roll. And please call the absent Members on which one Senators on the one item, AB 136. Just one? No, sorry. Okay, go ahead.

[Roll Call] Okay, we're going to put it back on call. Senator Wahab is coming back to vote, so let's go back into a brief recess. Okay, we're going to return from recess. Okay, we're going to open the roll and please call the absent Members. [Roll Call] Okay. And aye understand that no other Members are returning. Ayes that right? Okay, good. S. Okay, the ayes are 13, the noes are three. The motion passes. Thank you, guys. And with that, we are adjourned. Thank you. Okay. Thank you. No problem.