Senate Budget and Fiscal Review Subcommittee No. 3 on Health and Human Services

Good morning. Budget Subcommitee number three will begin. Want to welcome everyone for coming. Thank you all so much for taking your time for this informational hearing. Today's hearing will be focused on forecasting and estimates crafting the budget for California's health program.

During this hearing, we will hear from state departments that are involved in estimating and developing the budgets for our most significant state health programs, including Medi Cal and programs, and the Department of Public Health.

We will solicit public comment after completion of the presentation items within this agenda, at which time the public may comment on any of the previous items.

This is something that I am sure is on the minds and hearts of many people not only throughout California, but throughout this nation, as we have heard of a lot of changes in volatility within our health and human services systems. So, I really want to thank all of the departments for putting this presentation together today.

I know this will be a first of many conversations that we will have to have, given the current landscape that we are in on a state and federal level.

So, first, we will hear from the Department of Healthcare Services who will present on how the Department crafts the state operations and local assistant estimates for our Medi Cal program. Joining us this morning is Lindy Harrington, Assistant State Medical Director for DHCS, and Lori Walker, Deputy Director Fiscal Chief Financial Officer for DHCS.

Thank you so much and you all may begin.

Good morning. Good morning. I'm Lori Walker. I'm the Department's Chief Financial Officer for the Department of Healthcare Services and I will kick off our conversation this morning on just a broad overview and then some information on our state operations.

The '25-'26 budget for DHCS reflects the Administration's continued commitment to transforming Medi Cal into a more coordinated, person-centered, and equitable healthcare system. The budget supports DHCS's purpose to provide equitable access to quality care and leading to a Healthy California for all. Our total budget for DHCS is $202.7 billion, positions totaling 4,945.

Our state operations budget is $1.4 billion and our local assistance totals $201.4 billion.

Major programs and priorities for the Department include Medi Cal transformation which is a continued investment in Cal Aim to improve care coordination and whole person care, behavioral health transformation, strengthening community based behavioral health services and infrastructure, equity and access expanding services for underserved populations including those with complex needs, and accountability and transparency enhancing oversight and data driven decision making.

The Department has $45.6 billion in General Fund representing about 18% of the state's total General Fund spending and $120.7 billion in federal funds, which represents about 60% of the department's budget. Additionally, we have several funding sources from special funds and reimbursements that total about $36 billion.

Local assistance expenditures are $201.4 billion and of that, $45.3 billion represented in the General Fund. Our State Operations Fund funds DHCS's staff, information technology services oversight, program administration, and financial operations that total about $1.4 billion and of that, about $320.6 million is State General Fund.

The '25-'26 budget enables DHCS to continue delivering on its strategic priorities within a reasonable budgetary structure. I'll take a moment to address how the Department evaluates state operation needs, including how we determine the appropriate number of positions and when contracted services are needed.

It starts with the program requirements with DHCS beginning to analyze statutory, regulatory, or policy changes. This could be things like new federal mandates, state legislation, or large initiatives like Cal Aim. The Department evaluates the size and technical complexity and duration of workload and estimates are made for caseload, transactions, or deliverables to determine staffing levels.

DHCS compares current staffing and expertise projected to projected workload and tasks are categorized by functions such as policies, operations, fiscal, legal, IT, to identify where resources are most needed. Our program, fiscal human resources, and executive teams collaborate to validate assumptions and workload drivers.

Historical data and benchmarks are used to estimate how many positions are needed per unit of workload and DHCS identifies appropriate civil service classifications based on duties and required skills. We also determine whether positions should be permanent or limited term or even temporary help based on workload duration.

DHCS adheres to applicable laws and regulations and rules regarding the use of contractors and contractors are considered when the work required skills are not available in house. This is things like actuaries or IT developers.

Contracting is preferred for pilot projects, system builds, or federally required evaluations, and DHCS evaluates whether contracting is cost effective and whether procurement timelines align with project needs or policy implementation.

Some federal and grant funds DHCS may have may dictate the limit or limit the use of state staff versus contractors and DHCS prepares cost comparisons to justify the staffing model and budget change proposals we submit each year. Staffing and contracting decisions are subject to Department of Finance and legislative review and approval through the budget process.

State staff for DHCS provide continuity, institutional knowledge, and have direct oversight of our programs, whereas our contractors are managed through performance-based contracts with clear deliverables and timelines and metrics. When assessing the need between state staff and contracted resources, the Department guiding principle is the right resource for the right workload.

DHCS evaluates each workload based on duration, complexity, urgency, cost, and available expertise with the goal to ensure fiscal responsibility, program effectiveness, and compliance with state and federal policy. DHCS uses civil service positions when ongoing or recurring workload is part of the Department's core functions.

This includes things like eligibility, policy development and oversight, fiscal forecasting and budget management, program monitoring and compliance activities, or long term IT system maintenance and user support. This builds institutional knowledge, ensures continuity and accountability, and most cost effective over time for sustained workload. DHCS uses contracted resources when short-term, specialized workload cannot be met with existing staff.

This includes examples like actuarial services for rate development, independent evaluations required by federal waivers, large scale IT system development or modernization, or surge support for limited projects such as the COVID-19 response or Cal Aim implementation. This provides access to niche experience, enables rapid deployment, and avoids long term staffing commitments for temporary needs.

All contracts are subject to procurement laws and rules and performance metrics and fiscal oversight. State positions are subject to civil service rules, collective bargaining, and personnel oversight. The Department includes justification for staffing decisions in all budget change proposals, subject to legislative oversight and approval.

Our goal is to continue to balance long term capacity with short term flexibility while maintaining accountability, transparency, and fiscal responsibility and I will turn it over to Lindy to go through the local assistance information.

Good morning. So, when we are looking at our local assistance estimates, you know there's a—the real purpose and importance of caseload forecasting, caseload forecasting is a critical component of the Medi-Cal Local Assistance Estimate and directly informs the state's budget planning for Medi-Cal Services.

It ensures that funding levels align with projected enrollment and service utilization across all aid categories. Caseload projections are updated twice annually during estimate development.

Data is through July for the November estimate cycle to develop the Governor's Budget released in January and data is through January for the May Revision estimate cycle for update in for updated projections that will be included with the May Revision.

This is an iterative process that allows DHCS to incorporate the most current data and policy developments into each budget cycle. But we are—there is a slight delay in that timing because we need to have the data available to be able to utilize that data, do the analysis, and have it in the estimate.

The Department uses a specialized system called the Enhanced Medi-Cal Budget Estimate Redesign, or EMBER, to develop its caseload projections. EMBER integrates data from the DHCS data warehouse and provides advanced statistical tools for modeling. The Department uses EMBER to run approximately 2,200 separate regressions to generate base caseload projections.

These projections are highly granular and tailored to specific aid categories and eligibility pathways. Most base caseload projections are incorporated into the estimate through what DHCS refers to as a policy change, even if the underlying trend is not delivered—not driven—by a new policy.

Other projections are included in what we refer to as "the base section of the estimate," which reflects fee for service and managed care caseload and utilization trends.

Our forecasts are informed by historical enrollment trends from the Medi-Cal Eligibility Data System, or MEDS, demographic projections from the Department of Finance, population growth, aging economic indicators such as unemployment and income levels, county level data on eligibility processing and redeterminations, and then program specific data from internal DHCS systems and external partners.

The forecasts account for the impact of state and federal policy changes including Medi-Cal expansion to undocumented adults, CalAIM implementation, e.g. enhanced care management, postpartum coverage expansions, the unwinding of the COVID-19 continuous coverage protections. Each policy is modeled separately to estimate its caseload and fiscal impact.

The full methodology assumptions and projections are documented in the Medi-Cal Local assistance estimates that are submitted to the Legislature as part of the budget process. We work closely with the Department of Finance to ensure accuracy and transparency.

The Medi-Cal estimate, however, is just that, an estimate, and there are a myriad of assumptions that go into developing the estimate. We used to have a former Director that did, or not Director but Chief over our Fiscal Forecasting Division, that liked to say the estimate is perfect. It's those darn actuals that caused the problems.

So, as we think about, you know, walking through examples of some of the major changes that can impact caseload and expenditure estimates, you know, these are generally going to be key policy drivers, things like the undocumented adult expansion.

The expansion of full scope Medi-Cal to income eligible individuals, regardless of immigration status, is a major driver of caseload growth. This policy significantly increases enrollment in adult aid categories and is something that had not been done before, so there's a lot of unknowns about that.

So, you use the data that you have, but there are some unknowns, and you have to make some key assumptions.

Elimination of the Asset Test—when we removed the Asset Test for seniors and persons with disability that expanded eligibility to individuals who previously exceeded asset limits, increasing enrollment in high-cost categories. Cover COVID 19 continuous coverage unwinding—as we unwind pandemic era continuous coverage protections, we're seeing fluctuations in enrollment due to resumed redeterminations.

This creates short term volatility in caseload projections. Premium elimination for certain populations. Eliminating premiums for programs like MCAP and CHIP reduces barriers to enrollment and improves retention, particularly for working families. We also have key drivers of cost drivers.

So, beyond just the caseload increases, if you look at things like provider rate increases, so increases to provider reimbursement, improves access but also raises baseline expenditures across both managed care and fee for service systems. We did Med-Cal Rx, or the pharmacy carve out.

This pharmacy carve out centralizes drug purchasing and rebate collection but also increases administrative and system costs in the in the fee for service budget. Benefit expansion so new benefits such as doula services and continuous glucose monitors enhance care but increase per member costs and require system readiness and provider training.

Within Medi-Cal, we have a capitated rate setting process and we're going to share a little bit about how we—that—process works and what we do there. Given the limited time, it's going to be fairly high level.

But first and foremost, our capitated rates paid to our Medi-Cal Managed Care Plans, or MCPs, must be certified as actuarially sound and that is why we have actuaries that are licensed to do Medicaid certification and those rates must be developed using generally accepted actuarial principles and practices and they must be projected to be sufficient to cover all reasonable, appropriate, and attainable costs for the populations and services covered under the MCP contract and compliant with other applicable federal regulations.

For this rate development, Department of Healthcare Services contracts with Mercer, a nationally recognized actuarial firm to develop and certify our capitated rates. MCP reported encounter and supplemental cost station data and utilization data serves as the foundation of this rate setting process.

Additional data sources when appropriate, such as fee for service claims, other state Medicaid programs, and non-Medicaid payers are utilized to supplement that data. Adjustments to the data that we receive from the managed care plans are made for data completeness and reasonableness, so we look to determine is what they submitted reasonable? Is it complete?

It's adjusted for cost and utilization trends, programmatic and policy changes. So, for example, if we're instituting new initiatives, benefit and eligibility changes, delivery system reforms, et cetera, we account for those future perspective changes that were not captured in the base data.

We look at population risk so population acuity and risk adjustment in that rate setting process—process—as well as non-benefit costs such as administration. This methodology is discussed with managed care plans throughout rate development, which is actually a one and a half year process and is published annually on the DHCS website through our rate certifications.

As part of rate setting, we also look at risk mitigation and so, we have a medical loss ratio. The state law establishes a minimum MLR standard of 85%. This ensures a majority of the funds that go to medical care and quality improvement. MCPs must return funds if the MLR falls below that 85%, started in 2024.

There's approximately a two-year lag for claims completion and MCP reporting and DHC review of calculations, so we don't see the results of those MLR calculations until that time has passed. We also look at risk corridors and utilize risk corridors that can be applied to services, populations, or programs with high uncertainty in projections. For example, ECM.

When ECM started, we instituted a risk corridor associated with the payments. Those risk corridors are limited in duration just until costs and utilization stabilize or we have sufficient data available for rate setting and in a risk corridor, we reconcile the actual versus projected costs which may trigger either payment or recoupments from MCPUs.

There are other mechanisms that we can utilize to mitigate uncertainty for certain components of capitated rates such as enrollment or risk adjustment updates. All of those must be accounted for and included in the rate certification when that rate is developed.

And though capitated rates are a large portion of Medi Cal expenditures, they are not our only expense driver.

So, for example, we also have fee for service expenditures and what that includes is really looking at medical services that are not covered under managed care, such as dental, pharmacy—as we provide that through Medi-Cal Rx—and some specialty services.

These services are a significant portion of local assistance and are funded through a mix of General Fund and federal matching funds, primarily through Title 19 federal funding.

As we look at policy changes, so expansion of full scope Medi Cal to individuals, implementation of new federal regulations or state initiatives, can have an impact on our funding. As we—behavioral health services is a major driver, you know, and that includes mental health and substance use disorder treatment, including county administered services and new behavioral health initiatives and these are funded through 1991 and 2001 Realignment General Fund, Federal Funds, and Behavioral Health Continuum Infrastructure Program Grants.

County Administration is another large driver of costs for the Medi-Cal program, and these are costs for counties to determine Medi-Cal eligibility and maintain our enrollment systems. And this funding is in our local assistance and includes administrative allocations to counties and is funded by General Fund and federal matching funds, typically 50-50 with some enhanced funding.

Another driver is our supplemental and directed payment payments and these are payments to providers outside of base rates, such as our state directed payments under managed care, including things like our Quality Incentive Program or enhanced payment program for our public hospital systems.

These are often funded through intergovernmental transfers or special funds and federal funds with no direct General Fund impact but significant local assistance implications.

The other major driver, as we discussed, are those changes in caseload—so caseload growth and demographic shifts—and so, increases in enrollment due to economic conditions, policy changes, or demographic trends and these you know, driving higher utilization across all service categories, which can then increase both our managed care and fee for service expenditures.

One of the, as we look to the budget, one of our funding mechanisms that we have successfully leveraged in the past as state support for Medi-Cal are provider taxes and they are state imposed assessments on health care providers such as hospitals, skilled nursing facilities, or those managed care organizations and they generate additional Special Fund revenue that can support Medi-Cal program costs for existing coverage and services or new investments such as enhanced provider payments or improvements in access and quality of care.

So, today, we currently have a managed care organization tax which is an enrollment-based tax on Medi-Cal and commercial MCOs, most recently authorized for April 2023 through December of 2026 and amended to have a higher rate, effective January of 2024. We currently obtain about 12.7 billion annually in gross revenue for calendar year 2025.

This supports capitation payments to managed care organizations for the Medi-Cal share of their tax liability, program costs for existing coverage and services, and provider payment increases including primary maternal and mental health care and other domains under Proposition 35 and state's cost for administration of the program.

We also have the Hospital Quality Assurance Fee that's assessed on private general acute hospitals made permanent by Proposition 52 in 2026 and it's annually revised by Department. Currently brings in about $9 billion in annual tax revenue.

It's currently pending federal approval and again, this supports supplemental payments to private hospitals, children's healthcare coverage, grants to our public hospitals, as well as the state cost to administer the program.

We also have a skilled nursing fee, an inter facility and intermediate care facility for the developmentally disabled quality assurance fee, and these are monthly fees based on resident days for skilled nursing facilities and the fees are tiered by facility size and again, these support Medi-Cal rates for skilled nursing facilities and ICFDD services.

We have a ground emergency medical transportation quality assurance fee, and this is a per transport fee for private providers only and it supports Medi-Cal rate add-ons for private provider GEMT services. However, with these provider taxes, there are also federal challenges.

HR 1 that was enacted on July 4th of 2025 included a moratorium on new or increased taxes effective upon enactment, a reduction in what's called the safe harbor threshold, which is 6% today, to 3.5% to a 0.5% reduction each year starting in October of 2027.

And this will affect our MCO tax, our hospital quality assurance fee, and our GEMT quaff. There's a prohibition of tax structures that place a greater tax burden on Medicaid units, enrollees, bed days, transports relative to non-Medicaid units.

And this is all awaiting federal regulatory action to know exactly what that will mean and how—when it will be effective. And this will affect our MCO tax, our hospital quality assurance fee, and it could potentially affect our skilled nursing facility quality assurance fee, but that's pending federal guidance.

It will depend on how that guidance ultimately comes out. CMS has also increased scrutiny of how states generate and use those provider tax revenues. So, Department is actively researching options and flexibilities under federal regulations and conferring with leading subject matter experts on what could be possibilities for the future.

We're engaging with other states to identify risks, best practices, and options, and engaging affected stakeholders in anticipation of the forthcoming federal action. And that is our presentation for today.

Thank you. Thank you both so much. Just have a couple of questions for you. We'll start with the provider taxes. And so, you said with the HQAAF, you are still awaiting federal approval of the $9 billion.

Correct.

Do you have any sense of when that will come? And historically, when has that approval come through?

So, historically, it has not been unusual for it to take a significant period of time after submission for it to be approved. I unfortunately wish I had a crystal ball and could tell you I think the approval will come at this particular time, but we are continuing to work closely with the Federal Government.

We're responding to questions, providing them additional information to support both the quality—the tax itself—as well as the payment models that that revenue utilizes. And so, it's a combination of all of those approvals are happening at this point. And so, we're working back and forth with CMS on those.

There was a bit of a delay when CMS stopped, a little bit delayed some of the review as they were looking at what the implications of HR 1 were. They're continuing to process, as well as the recent shutdown delayed some of their ability to work as swiftly with CMS. So, we continue to work.

We've provided all of the information to CMS at this point and are just awaiting for either the next round of questions or hopefully approval.

Is there any concern about the lack of approval for the $9 billion?

I would say I'm always concerned when I don't have the approval in hand. But again, we continue to work collaboratively with our federal partners and, and we do not have an indication at this point that there is a need for concern.

And has the Department started developing a Plan B?

So, we are working to look at, again, what our options would be for what a new tax could look like that would be permissible under HR 1.

Okay, and with the MCO tax that we've been dealing with for the last couple years and then we have the ballot measure, are we at risk, is there any potential risk to that structure?

So, so there is. So, if, if we, if we had submitted that tax after the date—so, if we start with a brand-new tax that looked like that—it would not be compliant with the new HR rules. But again, the federal CMS has not issued the regulations or guidance for how to implement or what will be allowable.

But we do continue to work and look at what options we will have. We also don't know what the effective date of those changes will be, so we are waiting federal guidance for what that could look like.

But until we have information on either what a federal transition period could look like, we just don't know what that date will be.

So, there is a chance that it could be a retroactive date?

I think it's unlikely to be a retroactive date, but we don't know whether we will be able to have the full calendar year 2026 revenue.

Interesting. Okay, question around EMBER. So, how long have we been using that system?

So, the original EMBER system has been—so, it's before the time that I came to the Department, I was previously the Deputy Director for Healthcare Financing and Deputy Director for Administration. I was the Deputy Director for Administration in 2012. And it had been around for, I want to say around more than 10 years at that point.

But we have recently done updates to the system.

So, this was a system that was used when projecting caseloads when we did the expansion of eligibility. And so, that's the system that was grossly off. And I think you were trying to say it was because this was kind of an area of unknown.

Are you talking about the expansion for undocumented individuals?

It is. So, we had, again, because you have to—there was no historical trend that could be utilized in the EMBER system. So, the EMBER system did not actually do the original estimate for what that expansion would be. The EMBER system is using existing data, and I—jump in at any point.

The EMBER system uses our trend data, our information on enrollment that we have with within our data warehouse. This is additional information that's coming on top of. And so, we build on top of the data that comes out of the EMBER system for those.

So, seeing that, given some of the changes that we made in our budget last year and with the new changes that are coming from the Federal Government in terms of eligibility, how are you accounting for this new landscape when projecting future enrollment numbers and utilization?

So, we are, again, doing our best to look at what data is available.

What are—are there other states that have had taken actions or look at, you know, some of what their results were, or looking and working with experts in the industry. We're having conversations, we're working across states to talk about assumptions for what this could look like and really trying to work collaboratively to come up with our best estimates for what the impacts will be.

And traditionally, how does DHCS account for variability within specific service utilization? Excuse me. So, like behavioral health or long term care or pharmacy.

So, again, we look at, we look at those service trends and what we're seeing in those service trends, and we don't look back just like 36 months.

Like we have long term trends that we look at to try to look for where there is that volatility, particularly for long term care and things that are in our managed, that are carved into managed care.

We work really closely with our actuaries on developing those trends and understanding those impacts and how that volatility can impact the rate setting methodology.

And are there specific populations that are more challenging when you're forecasting?

I would say there can be populations that are more difficult because there are just variations in utilization patterns and those activities. So, there can be some that can be more challenging than others.

Okay. Wanted to ask a question around just the system when you're looking at eligibility and you've got two different things that are coming now. So, one are new eligibility requirements that we have created in the state in this last budget year.

And then, you've got the HR 1 eligibility requirements that will go into effect I guess in 2027. How are you all gearing up and preparing to assist local counties in this new environment that they're going to have to deal with?

So, I would say the Department is working actively to ensure that we have guidance out as early as possible. We're having—we're engaging with our county partners already on some of these activities, having conversations, what's coming, and working through, through those activities.

Have you received, excuse me, any guidance or recommendations from the Federal Government?

So, we have not yet received the guidance from the Federal Government. We did recently hear that they will be issuing at least some information sooner than we anticipated, and that will then be followed with additional, further guidance. But we are working with the best information that we have on hand and moving full steam ahead to be prepared when that guidance comes for how we may have to pivot.

All right, well, thank you both. I know these are very different times than in the past, and we're all just doing our best, but really appreciate it.

And like I said at the beginning, I'm sure that we will continue to have these conversations to ensure that we are keeping each other informed of what we need to do to ensure that we're able to provide the most for our residents here in California. So thank you both.

Thank you.

We're going to move to our second panel, the California Department of Public Health, State Operations and Program Estimates. Please forgive me if I mispronounce your name, but we will have Brandon Nunes, Chief Deputy Director of Operations, Faria Kau from WIC, Dr. Dimple, genetic screening—Genetic Disease Screening Program.

Emilu Slaga, the Genetic Disease Screening Program Assistant, Division Director, Marissa Ramos, Office of AIDS Division Chief, and Joseph Lagrama, AIDS Drug Assistance Program Branch Chief. And you all may begin whenever you're ready.

Okay. Am I on?

Okay.

Good morning. My name is Brandon Nunes. I'm the Chief Deputy for Operations. I'll go ahead and do the state operations overview and then we'll get into the rest of the program areas for the local assistance side of this with the rest of our team.

But for the request, as far as the budget that we operate under, CDPH has a total budget of 5.2 billion. About 800 million of that comes from the General Fund. We have about 50 different special fund sources that we use to support the programs, and that comes in at about 2.1 billion.

And then, of course, we're supported quite a bit by federal funds. So, 2.3 billion comes from federal funding sources. That split of the 5.2 billion, roughly 1.9 billion of that comes from state operations and 3.3 billion of that supports local assistance.

And then, in total, on our state operations side, that funding goes to support about 5,200 state positions.

The kind of breakdown for state operations, that 1.9 billion that I mentioned, about 400 million of that comes from General Fund sources, 600 million from federal funding, and another 900 million comes from those 50 or so special funds that I mentioned.

And then the 3.3 billion that supports our local assistance budget, about 400 million of that comes from General Fund sources, federal funding is about 1.7 billion, and special funds and reimbursements is another 1.2 billion.

And I think the vast majority of that 3.3 billion, particularly the federal funds, is represented here in the programs you'll hear about in WIC and GDSP and ADAP. You also asked a little bit about the program areas that this funding supports. Our Department is broken down into what we refer to as centers, divisions, and offices.

And obviously, most of our programs operate within these major different centers, divisions, and offices. And so, I'm just going to give you kind of what some of those are and the high level operations that they support. Center for Preparedness and Response is one of the areas that obviously did—the majority handled kind of our operational response related to COVID 19 and they support a lot of our emergency preparedness response coordination, recovery operations for public health threats, including natural disasters, pandemics, and bioterrorism.

And it manages our Public Health Emergency Operations Center and it does a lot of support for local health departments through planning, training, as well as resource requests that occur maybe during an emergency. Center for Infectious Diseases provides guidance and outbreak response coordination to protect Californians from communicable disease threats.

This center oversees our statewide surveillance, prevention, and control of infectious diseases such as HIV, tuberculosis, STDs, and emerging pathogens. In our Center for Healthy Communities, this deals with a lot of our different chronic disease areas.

One of our larger programs in there is our Smoking Cessation Program and it promotes health equity and wellbeing by addressing chronic disease prevention, injury and violence prevention—prevention—nutrition, physical activity, and community wellness, and this center leads statewide initiatives that support healthy environments and behaviors.

Family Health, who's represented here today in the WIC and the GDSP programs, focuses on improving health and wellbeing of women, infants, and children and families through programs like Maternal and Infant Health, Adolescent Health, the WIC Program, and our Genetic Disease Screening Program, and it administers key initiatives.

We've received quite a bit of funding in the past several budget cycles related to the Black Infant Health Program and the California Home Visiting Program that helps reduce disparities and promote equity in family health outcomes. Our Center for Healthcare Quality handles the oversight of a lot of our health facilities around the state.

It regulates and oversees California's healthcare facilities to ensure they meet state and federal standards for patient safety, quality of care, and operational compliance. They administer licensing, certification, and enforcement programs for hospitals, skilled nursing facilities, and other healthcare providers, while also leading initiatives to prevent healthcare associated infections and improve long term care services.

And then finally, I'll focus on the Center for Environmental Health. CEH protects Californians from environmental hazards by regulating and monitoring exposures to toxic substances, ensuring safe drinking water, and enforcing public health standards in consumer products and workplaces. And CEH leads statewide programs in radiation safety, food and drug safety, environmental management, and emergency response planning.

So, that's kind of a broad overview. A lot of different things going on in the Department. And I think some of the other questions that you asked us to focus on were related to how we develop some of our state operations estimates.

So, I think the question was how do we evaluate our state operation needs for our program areas, including number of positions and the need for contract resources? And so, in the Department, we kind of work on the standard statewide budget development timeline.

So, all the way back in June, when we're shutting down one budget, we're actually working on the following year's budget. So, we work with all these CDOs that I just mentioned. The leadership teams in there work with their program areas to identify what the resource needs may be for any given year and the state operation needs, they generally revolve around growth that we may be seeing in a program area or feedback that we're receiving from stakeholders or local health jurisdictions that are driving maybe the needs for certain program increases.

There are also things that drive increases, such as legislation that passes.

We put up what we call ledge proposals that support those requests that came in for changes from legislation, and we also have to take into consideration that a lot of our funding sources come from federal funding sources, so a lot of the funding that we receive we refer to as categorical.

So, we may receive a lot of federal funding, or we may have a lot of different special fund resources that are available to us.

But much of it is for very specific either grant, federal grant needs, or very specific things related to the special fund resources that we—so, in other words, the genetic disease screening program that you'll hear about, those resources come in, and they have to be specifically used for that program.

So, as we see program changes or caseload increases or the like, those are usually driving the need for those funds. But we can't just kind of take those funds and use them in other areas of the Department.

So, there's a lot of different variables that have to be taken into consideration as kind of we build our state operations budget. But for the most part, we're working very collaboratively with our leadership team across the, the different CDOs.

As it relates to how we make a determination on civil service classifications versus contract resources, I would say 95% of the time we're requesting civil service positions, state support positions for the resources that we're requesting. In certain incidents, and as I think CHCS mentioned, to the extent we don't have some of these skill sets in house, we do look to contracts and they're generally in larger areas.

I think DHCS also mentioned IT development and maintenance. That's a big contract area for us as we build these things out. In emergency preparedness, we sometimes need surge staffing, so we'll go out and look for contractors there or we look to stand up call centers for calls that come in from the public.

Usually, we use a contractor to set up those call because those are really temporary resources that we need, so we usually go through contractors there. I mentioned our Tobacco Cessation Program. There's a lot of different media consulting contracts that we work with them on.

You may have seen some of the tobacco cessation commercials from CDPH that go out there. We work with contractors on those. And then I think one of the larger areas where we do contracting outside of state staff is in CHCQ.

We have a very long-standing contract with Los Angeles County where they provide the nursing staff to do the inspections in the Los Angeles County region, and that's been going on for quite some time. So, we have that ongoing contract with them to support those needs there.

With that, I'll pass it over, if it's okay, to the ADAP Program to go through their testimony and then we'll just continue down the line.

Good morning. The Office of AIDS AIDS Drug Assistance Program Branch provides administers ADAP which provides access to life saving medications, health insurance premium payment, thank you payment assistance and assistance with medical out of pocket costs for eligible California residents living with HIV.

The Pre Exposure Prophylaxis Assistance Program serves eligible Californians and provides assistance with medications and medical out of pocket costs related to HIV prep for clients at risk for acquiring HIV or who may have been exposed to HIV.

The ADAP branch estimate adheres to the cost per client per month estimating methodology which captures projected expenditures as they relate to changes in in caseload and changes in cost and or services.

The cost per client per month model looks at two input variables to calculate the cost of each service type expenditure provided, thus generating the expected monthly costs. The sum of expected monthly costs become the estimated annual costs while inputs may vary depending upon what information is available at the time of a given estimate.

Forecasts are modeled conservatively with the objective of reducing the risk of underestimating the budget needs. The ADAP estimate communicates the total estimated budget authority need. This is the aggregate fiscal impact across all client groups and service type expenditures via the cost per client per month estimating methodology. In the ADOT branch there are several expenditure types.

Health care includes medications, insurance premiums, medical out of pocket costs. There are also administrative costs for contractors and other costs such as allocations to other programs. Our method includes a model estimate which is the baseline estimate.

It includes an estimate of the expenditures assuming that there would be no new assumptions and no changes to the fiscal impact of prior assumptions. The baseline estimate is the projected cost of existing factors based on trends which leverages historic data from within the last 36 months.

The assumption estimates are forecasted based on specific assumptions which introduce or update policies, policy or programmatic changes affecting enrollment, caseload, population and expenditures. The data cutoff for the November estimate is generally July or August. The data cutoff for the May revise is generally January or February.

We use data through these time frames to provide up to date projections in terms of our data source for expenditure forecasting. For the model estimate, the data source is ADAP historical data. The assumption estimate data source varies by assumption since the impact to each expenditure type varies.

Data sources may include historical data, rebate projections, medi Cal data, data from government entities and publicly available data and data from our benefits managers. In the ADAP branch, there are five client groups.

Similar to estimate forecasting, the baseline estimate is an estimate of the number of clients to be served, assuming that there would be no new assumptions and no changes to the number of clients to be served. By prior assumptions the assumptions estimates are forecasted based on the specific assumptions.

The client counts reflect the clients anticipated to generate an expenditure or savings due to the assumption in terms of the data sources for caseload forecasting. For estimate forecasting, the baseline estimate is also based on trends that leverage historic data from within the last 36 months.

The assumptions estimate data sources may include historical data, Medi Cal Data, HIV surveillance data, data from other government entities and publicly available data relative to the assumption topic and data from our benefits managers which include our pharmacy benefits manager, insurance benefits manager, and medical benefits manager.

Here are a couple examples of how the method is applied to some of the major policy changes. In example one, when projecting net expenditures for the increase of the income limit from 500 to 600% of the poverty level for ADAP and PREPAPP, we utilize historic data on the cost of medications, health insurance and copays.

Consider the higher rates of insured clients in this population, utilization data from the pharmacy benefits manager and projected rebate for ADAP clients and no rebate for PREP App clients. In terms of caseload, we use historic data to determine trends which show declining client counts towards the higher income level.

In example two, when projecting the impact of adding lenacapavir for HIV prevention, we factored in the availability of pharmaceutical assistance programs for certain clients, drug cost data from the pharmacy benefits manager, historic data on the cost of administering injectable drugs and HIV prevention coverage requirements for clients with other coverage.

Because only ADAP medications generate rebate, no rebate was factored in for this study. In terms of clients, we use historic data to determine utilization trends in terms of how the ADAP branch is managing the impact of federal changes at this time, recent federal actions have not directly impacted adap.

However, the ADAP branch is and will be indirectly impacted by federal actions that result in individuals no longer being eligible for health insurance. I'll now pass it over to our colleagues at the California Genetic Disease Screening Program.

Okay. Good Morning. Hi, I'm Dr. Dimplecona. I'm the Division Director for GDSP. I'll get started here. So to go over our caseload and expenditure forecasts, GDSP's caseload and expenditure forecasts are driven by actual participation, birth projections, costs associated with adding new disorders, and contract increases.

Key cost drivers include specimen volume, laboratory contracts, case management, technology upgrades, staff training, and program Administration.

Some examples for newborn screening Expansion of screening tests is required by our Health and Safety Code, which mandates adding new Recommended Uniform Screening Panel, AKA the RUSP Conditions and aligning prenatal screening with national standards for prenatal screening, Screening methodology and standard of care alignment from professional associations is required by law impacting participation rates and operational costs.

The most recent example of this was transitioning to cell free DNA to screen for chromosomal abnormalities. So federal actions. GDSP is fully funded by participant and provider fees. No federal or General Fund Dollars are used.

When the Federal Secretary of Health and Human Services adds a new condition to to the RUSP panel, our state law requires GDSP to expand newborn screening directly affecting the program's scope and costs. That's it.

I'd help to turn on the microphone. Good morning. This is WIC Division Director for Reha Chaudhary and I'll be here to provide an overview of the estimate of caseload and forecast for the California WIC program. So CDPH uses a structured multi factor approach to forecast WIC case flows and expenditures.

This process is grounded in both historical data and forward looking assumptions for forecasting food. Specifically, CDPH forecasts using four main WIC caseload or participation projections, historical food package costs, inflation projections, and infant formula rebate revenue projections.

In forecasting food, a baseline of historical food package costs in the prior state fiscal year is used for projecting future food package costs. Those future costs include inflation numbers for current and future budget years and in addition to food costs.

Our expenditure forecasting considers state operations, funding for state operations, wic, local agencies, and other technologies necessary for the provision of direct WIC services. This forecast is influenced by changes in allocation levels, positional authority, and baseline adjustments. As mentioned on the prior slide, CDPH uses caseload in its expenditures forecasts.

Caseload is forecasted by each participant category using a 12 month rolling logistical growth model. Another way to say it is a moving 12 month window that is capped at eligibility estimates that incorporate MEDI Cal Enrollment and USDA projections. Participation is the main driver of food costs and each category has special nutrition needs that influences those costs.

Policy changes as well can significantly affect how we estimate costs. For the WIC program in California, this is mainly through impacts to participation or food costs.

For example, when the Federal Government adjusts the amount of our cash value benefit for fruits and vegetables, or when there are changes to the WIC food package at both the federal and state levels, those updates can raise or lower WIC food costs. Another big factor is program eligibility.

If federal rules change around income thresholds, that can shift how many Californians can access wic, which indirectly impacts our caseload projections. And finally, when we modernize how WIC services are delivered, such as with introducing online shopping. It can influence both participation rates and and the cost of WIC food packages.

And lastly, CDPH is closely monitoring federal actions to support planning around any potential fiscal or programmatic impacts to the California WIC program. So far this year, there have not been federal actions directed to wic. However, in response to the recent Federal Government shutdown and the uncertainty around WIC's federal funding and in California, CDPH took several proactive steps.

These include closely monitoring the daily cash flow of available federal funds in California throughout the shutdown, coordinating with the USDA to access interim emergency funding, and securing approval of an $81 million state General Fund loan to sustain WIC services through December 2025 if needed.

We routinely monitor and forecast cash flow as part of our fiscal management to ensure uninterrupted services across California, especially during times of reduced federal funding or rising costs. And throughout this year, including during the shutdown, we've worked closely with state leadership and partners to stay ahead of potential impacts. That concludes my presentation.

And I think those are all the questions you have for us. So happy to take any questions you might have.

Yeah, thank you so much. Thank you all for your time and for your presentations and for trying to anticipate future changes so that the residents don't feel things as harsh as much as possible with adap. Can you please elaborate for me on the potential impact of an increased number of people actually losing their insurance?

You kind of mentioned that at the end, but how do you see that impacting your program?

We are monitoring the impact of federal changes to our program, and we're looking at it internally to see what the projected impact is going to be in terms of our program in terms of the fiscal impact as well.

But if. I guess my question is just a little bit more basic. So if individuals are losing insurance, are you expecting your caseloads to go up or down? Are you expecting your costs to go up or down?

Yes. If clients are not enrolled in insurance and are instead a native client for whom we are paying for the full cost of the medication, that would present a projected increase to the cost for that client, rather than paying for a share of costs for that client as well as their health insurance premiums.

Okay. And so you would expect your caseloads. To go up, Correct. Okay. All right. Thank you. And for the genetic disease screening program, are you not expecting any changes to your program based on some of the new federal mandates that will be coming down over the next few years? Our. Do you want to. Okay.

No, I don't believe we are. Our program is directly affected by what programs or disorders are added to the RUSP panel.

So if there are new disorders added to that panel, then that would, obviously that would increase our costs because we would have to develop tests and assays and test different disorders and add more disorders to our panels. So from that respect, from the newborn.

Screening side, okay, but for the prenatal screening portion, are you expecting any changes in that area with the change of insurance coverage?

Yeah, so that depends on the insurance of the patient because currently, right now, 50% is actually paid for by medical. So 50% of our participants are medical patient.

So if DHCS medical is impacted by the Federal Government, we're not sure if our funding will be impacted if our revenue and it might be a financial burden to the patient if that would be the case, or we might experience a drop in our participation. Okay, thank you for that.

I want to thank you all so much for all that you are doing. I know that these are very challenging times. Want to thank you specifically in the WIC area for all that you're doing, looking, changing, asking for extra funds if necessary.

That is going to be a very important skill for everyone to have in these next few years as things are ebbing and flowing.

So I was really very appreciative to hear all of the forecasting and things that you were doing, especially during the government shutdown, trying to ensure that our, our infants and our moms here would not suffer. So thank you for that. Thank you.

Thank you. Thank you.

We are now going to move to our next panel, which is our Department of Finance. We will have Isabella Alioto. Thank you. Sabrina Adams and Nina Hong. And you all may begin when you're ready.

Good morning. I'm Isabella Alioto with the Department of Finance. My colleagues and I will be addressing each of the agenda questions for Finance, beginning with a general overview of the Department of Finance budget development process for California's health programs. The state budget process is guided by state law and constitutional requirements.

The Governor's Budget is constitutionally required to be presented to the Legislature each year by January 10th. The May Revision is statutorily required to be presented to Legislature by May 14th each year. Leading up to the release of each of these budgets, our Director of Finance will provide budget preparation guidelines to agencies and departments, under policy direction of the Governor's Office.

The Department of Finance evaluates budget change proposals and enrollment caseload and population estimates, which are submitted by departments.

Using these budget requests and estimates as a starting point, we work with the Administration to develop the proposed Governor's Budget, which reflects the priorities of the Administration within the scope of the state's projected resources. In the spring, the Department of Finance evaluates May Revision budget requests and caseload updates, again submitted by departments.

Updated information on General Fund revenues also becomes available in the spring. The May Revision updates the Governor's Budget to incorporate these revised estimate, the revised estimate, of General Fund revenues, and to propose adjustments to the expenditures.

Both the Governor's Budget and the May Revision are spending plans proposed by the Administration that serve as starting points for the budget process. Further discussions between the Administration and the Legislature follow the release of these two proposed budgets.

Proposed state operations spending for state health programs, such as the Department of Healthcare Services and the California Department of Public Health, are generally submitted to Finance for evaluation through budget change proposals. We evaluate the department's workload need, taking into account any new or changed state or federal requirements.

DHCS and the Department of Public Health submit estimates for projected local assistance expenditures by fund, including for the General Fund. These estimates are submitted twice a year and are evaluated as part of the budget development process for both the Governor's Budget and the May Revision. Finance evaluates these estimates of projected local assistance expenditures.

These estimates include caseload data, estimate methodology, in addition to the estimated expenditures and revenues. Proposals are considered based on current law, the merits and criticality of the proposal, and the availability of funding. Finance is then required to share approved estimates and supporting data with legislative fiscal committees by January 10th and May 15th of each year.

I will now pass it on to Sabrina, who will be addressing the remaining Finance questions.

Good morning. Sabrina Adams with the Department of Finance. So, today's background document asks us about the administration's approach when confronted with the General Fund shortfall. So, to begin at a high level, the Administration is required to submit a balanced budget proposal to the Legislature and our work with that begins with determining, determining our revenue projections.

We then have to assess how much of that revenue is already spoken for in existing obligations, entitlement programs, and base programs. And if there are remaining funds, those could then be allocated to priorities. In situations where revenues are not sufficient to fund our base programs, this is then considered a deficit budget.

And in deficit budgets, that's when you'll see proposals included in the Governor's Budget that are working to bring down the funding levels for programs. With these proposals, our primary focus is to maintain budget resilience and long term stability for the state while also protecting our core programs to the extent possible.

Conversely, in a General Fund surplus, the approach is similar. We will evaluate our revenues and see if there are remaining funds after we've allocated to those existing obligations. And then, the Administration can consider if there are funds available to support new program investments or expand our existing programs.

And generally, our evaluation criteria is based on the merits of the proposal, availability of funding to sustain these programs, and also the governor's priorities. Lastly, today's background document asks us to discuss our approach in light of this current Federal Administration and how this may impact our budget development process.

Our state budget process will follow the constitutional and statutory requirements that my colleague has laid out earlier in her remarks, and our departments will continue to prepare estimates that reflect what's required by current law.

As our colleagues at Department of Public Health and Department of Healthcare Services noted, they work really closely with their federal partners to track and understand any federal actions that could be taken and, and so they are monitoring very closely any potential federal actions.

In previous budgets, we have included tools through budget bill language that allow us to be prepared in the event of federal uncertainty.

So, for example, we have included language in previous budgets that allows the Administration to adjust the funding included in appropriation if a federal action is taken so, so that the funding is in place in the budget, but if there are federal actions taken, we can sort of adjust that funding.

And that's all our remarks for today, but happy to answer any follow ups. Thank you.

Thank you all so much for your presentation. One question that I have always had when dealing with the budget is how do you all balance short term fiscal constraints with long term investments needed in public health and just health care in general?

I think that one is dependent on the program and the specific issue at hand and then of course, the situation at the time. So, everything is evaluated in the context of the state's fiscal situation at the time of the release of the budget.

And I think that's going to be one of the bigger contributing factors to how decisions are made on those issues.

Okay. Because I know, at least for the last two cycles that I've been involved in the budget, both when I was here on the Senate and also on the Assembly, the recommended reductions were oftentimes baffling in certain areas.

And so I, I know I have always wondered how do you come up with these decisions to specifically target certain areas? And I'll just use like Department of Public Health usually gets a lot slashed and seeing how much we needed them in Covid.

And you know, I think in the past, like the Indian Rural Health Program was cut and that's some of those things just were baffling. So, just wondering kind of like who's at the table and how those decisions are made.

Nina Hong, Department of Finance. So, while reviewing, we kind of really like, as you know, my colleagues have noted, we really look at focusing on maintaining our core programs and looking at like, what programs are mandated by state and federal law.

And so, the items that are determined to be more on the discretionary side do kind of evaluate a little bit further. We don't really want to get too much into like the kind of deliberative process.

So, as always, we always mention that the proposals that we present at Jan. 10, they're kind of the starting point for conversations with the Legislature to come up with the final budget.

Just out of curiosity, when you all are looking or talking with various departments about programs that they institute, do you look at the data in terms of utilization outcome when you are determining which programs may continue to be funded or a change in funding?

I understand like, you know, we have like, historical programs, but even some of those, like historical programs may not necessarily be working anymore. So, I'm just wondering, does that ever come into the conversation as far as utilization and outcome in terms of, you know, health outcomes, or do you all take that into account?

So, magnitude of the population as well as outcomes, they're all considered.

Okay. With—thank you.

With the recent actions at the Federal Government level and the significant impact that it's going to have on the way in which we are able to deliver health care here in California. Understanding that we usually have the January Budget and then the May Revision, but there are, I mean, things are changing on a much more rapid pace.

Are there any conversations this year or for this upcoming year about the possibility of needing more, as you were kind of talking about like contingency/emergency funds for, you know, whatever this Administration chooses to do at a whim.

I would just say that our part—our partners—at Department of Healthcare Services and CDPH, you know, they are continuing to monitor very closely many actions at the federal level. But right now, our process will continue to follow what's required by statute and the constitution. So, the Jan.10 budget and proposed adjustments in the May Revision.

And my final question, I'm not sure if you'd be able to answer it, but this, this Federal Administration has really targeted women's reproductive health services, specifically providers or sites that provide abortion care, which is something that as a state we have always touted as something that we believe in reproductive—comprehensive reproductive health care.

Are you all having those conversations as to how we can continue to fund those if the Federal Government continues to go in the direction in which it has gone this last year?

So, we're not prepared to speak to specific proposals or sort of weigh in on weigh in on that at this time, but noting, noting your concerns and your remarks.

Okay. Thank you.

Well, want to thank you all so much for being here. We will now move to the final panel, which is our Legislative Analyst Office presentation.

And before—as they're walking up, just really want to thank you all for an amazing overview of all of the changes that you published in October considering Medi-Cal in the midst of changing fiscal and policy—thank you—landscape, and I gotta—okay. Thank you for this. I had it on my remarkable. Thank you.

But anyway, this is very good and I just want to really thank you and commend you for putting it out. And for those, I'm sure everyone in the audience has already read this. But for those who are watching or who may watch it later, if you haven't read it, I would strongly recommend that you do.

And with that, I will turn it over to you all.

Great. Good morning. Jason Constantouros, LAO. So, as you noted, we were asked to speak today about our report considering Medi-Cal in the midst of a changing fiscal and policy landscape. And also, for ease today, we have developed a two-page summary of the report.

So, I'll actually be working from that if you'd like to follow along and that should be distributed to you. You know, I think the first place to start is how, just to kind of summarize how the landscape is changing for Medi-Cal. And this is something that already touched on in the hearing.

It's something that the Committee had quite a bit of experience with this last budget cycle. But you know, in the past decade or so, the state has really focused on expanding the Medi-Cal program.

And those expansions are really driven by a number of things, including federal policy changes, most notably the Affordable Care Act, and also generally a period of state revenue growth. The situation is changing for a few reasons. One key reason is the state's fiscal situation, which has tightened quite a bit.

Also, a number of the recent expansions in Medi-Cal have come in more expensive than expected. And these are issues we grappled with at May Revision, so I'm sure you sort of remember that. As a result, the Legislature took a number of actions to pull back some of these expansions as part of the '25-'26 budget in June.

Then in July, Congress passed HR 1, which also includes many other changes to Medicaid policy and therefore affecting Medi-Cal. In our two pager, that first graph summarizes some of the key changes in HR 1. I would note that it does not include the state budget solutions that were also adopted.

Had we included those, this figure would be twice as long. And you know, for the sake of time, we won't go through every change in detail. If there are questions about that, we're happy to speak to them. But I think a key takeaway from this figure is that these changes are really not all in effect immediately.

They take effect over time and are sort of staggered over time. And they also cover many different parts of Medicaid policy, including financing and eligibility, immigration related issues, and a variety of other topics. So, you know, really a core question is how will all these changes affect Medi-Cal?

And we think there are four key areas that will really be interesting to track over the coming years. The first is Medi-Cal financing. And in particular, HR 1 makes a number of changes to provider taxes. As you heard in the first panel, these are taxes and fees that the state has used to help support Medi-Cal.

And these changes likely on net, will result in less funding from provider taxes. And some of that would entail less funding to providers. Some of that would entail sort of needed backfill from the General Fund to sustain existing program costs. Another key effect will be to beneficiaries.

So, due to a number of eligibility changes, a number of people will exit Medi-Cal. We estimate that disenrollment level to be around a million people in the report. I would emphasize though that there is a lot of uncertainty with this number. In fact, it could be lower.

It could even be much higher than what we sort of project in this report. One of the key drivers of this disenrollment will be from a new community engagement requirement, or basically a work requirement, requiring people to work a certain number of hours each month to remain eligible.

And not only will some people drop off because they do not work enough, but some people who work enough might still drop off due to the added burden of having to prove that eligibility. And that latter effect is highly dependent on how the state implements this requirement. That's why it's so uncertain.

There also will be effects to providers. Providers will get less funding or missed funding opportunities as a result of lower provider taxes. And also, safety net providers may face higher uncompensated care costs as a result of, you know, more people leaving Medi-Cal and becoming uninsured.

And then, finally, there will be new costs for state and local governments. We think—the one thing I think we'd want to emphasize is, you know, that HR 1 in total could result in, you know, tens of billions of dollars in lost federal funding. Not all that lost federal funding necessarily results in a direct cost to the state.

On a strict fiscal basis, for example, disenrollments actually result in savings. There are other programmatic implications, but on a very strict fiscal basis, those are sort of savings. So, on net, the cost of the state would probably be more in the billions of dollars.

We're still sort of assessing that as part of our fiscal outlook, but in the report, we say it could be as much as several billion dollars. Also, the timing, as you just discussed on the first panel, some of that timing also depends on forthcoming federal guidance. So, the exact timing of when these costs would happen are uncertain.

There also would be costs to county governments. County governments will have to implement new eligibility requirements, and a number of counties are also Medi-Cal providers. For example, a number of counties run hospitals. And so, they also could face higher uncompensated care as a result of HR 1.

So, turning to the second page, we think there are three key issues before the Legislature, and really, the first key issue, in terms of timing, is around implementation. So, the state will have to implement a number of these changes.

And HR 1 is very prescriptive in a number of ways, but it also allows states some flexibility in other cases. We offer three key decisions we think might be particularly worth keeping an eye on in the coming months. The first two are really around provider taxes.

So, again, we get an opportunity to ask DHCS about this and exactly the kind of decisions that the state will have to weigh. One of the key changes around healthcare-related taxes is that the Federal Government is aiming to make these taxes more proportionate between the cost that it pays versus the providers.

And so, in doing so, the state faces a basic trade off—does it want to have very large provider taxes, but at a potentially higher cost to providers and their consumers, or does it want to limit that cost by having smaller taxes? And that's really kind of the fundamental trade off.

There also are some limitations in state law, for example, Proposition 35 with the MCO tax, and those also would need to be weighed with any decision making. And then, that third sort of check mark there is around eligibility rules. So, the HR 1 does grant states some flexibility around exempt—around exempting—more people from these eligibility rules.

One of the most notable ones is that states can exempt people who live in high unemployment counties from the new rules. And so, you know, pursuing some of these exemptions could preserve Medi-Cal eligibility for more people. Depending on how the state has to implement these requirements, though, it also could introduce more complexity and volatility, too.

So, that would be something to track as we get more guidance from the Federal Government on how to implement these. On all of these decisions, we think early oversight would be warranted, given the sort of magnitude of these possible implementation decisions.

And also, providing policy direction through statute also could be warranted, even in cases where it isn't necessarily required. The second sort of key decision for the Legislature will be really about the future of the Medi-Cal program—what should its size and scope be?

And that's because even though all of those lost federal funds don't represent direct costs to the state necessarily, the state probably does not have enough fiscal capacity to backfill all of them in their entirety.

So, for example, were the state to create a new program to preserve eligibility for all those who lose coverage, the cost of that might not, they might not have the capacity for all of that.

And the Legislature's already had to sort of rebalance its priorities, and it may need to continue doing so in the coming years, depending on the state's fiscal situation. In doing so, there really are three basic levers. There's how many people does Medi-Cal serve? What's the service level? And then, how do we pay for these services?

And so, these are areas the Legislature could explore in all three of them. In recent years, the focus has really been on eligibility, because that's where a lot of the expansions were. But again, all of these areas are things the Legislature could pursue to help think about the size and scope of Medi-Cal in the coming years.

And then the final sort of key issue for the Legislature is around those who leave Medi-Cal. And the issue here is that a lot of experts who look at this predict that most of those who exit Medi-Cal will be uninsured or lack access to comprehensive coverage.

And, you know, addressing that issue, there isn't a sort of a simple state fix that can be easily implemented. And that's because there really are barriers to exploring alternative sources that the Legislature has normally turned to. So, a really good example would be county programs. So, counties run indigent health programs.

These programs actually predate the Medi-Cal Program and historically, were a key source of coverage for many low-income populations. Over time, these programs have scaled back because a lot of these populations have shifted onto Medi-Cal.

And so, to date, when we met with counties, anecdotally, what we learned is that for a lot of counties, these programs are at very, you know, minimal levels because again, most of the traditional populations are now on Medi-Cal. Renewing these programs would require a fair amount of fiscal restructuring.

That's because the state's fiscal structures have also sort of reflected this shift. And then, in addition, there also would be sort of new implementation challenges for counties too. Another option that would be intuitive to look to would be the state's health insurance exchange in Covered California, which is intended to help facilitate people accessing private health insurance.

The main challenge here is that many of those who leave Medi-Cal would be barred from accessing federal subsidies. That's a provision in HR 1. And so, as a result, those, you know, accessing care might not be affordable for many of these low-income populations.

And then, finally, you know, another place that would be sort of intuitive to turn to would be employer-sponsored coverage. This is the largest source of coverage for Californians generally, but there are barriers here too.

One key barrier is that at least some of those who accept from Medi-Cal will do so specifically because they do not work enough. And so, by definition, might lack access to employer-sponsored coverage. So, to really address these barriers, the Legislature likely will have to explore creative solutions and new approaches.

So, that's the crux of our analysis and we're available to answer questions.

Thank you. We can actually start with what you were just talking about. So, when you're looking at the county programs, pre Medi-Cal, how were those funded?

Yeah, the funding source changed over time. Most recently, it was based on something called realignment. So, the state shifted a number of responsibilities between itself and local governments and then increased some state funding—the vehicle licensing fee and the sales tax—to help cover those costs.

And so, those had been—those were a key source of funding for county programs. That funding is also available for public health programs, too. And so, we've—I think what we've gathered is a lot of counties over time have, have used more of that funding for public health programs.

Also, the state shifted some of those funds away when we shifted childless adults to Medi-Cal. And today, those, those funds are being used to support CalWORKS, and so, basically helping the state pay for CalWORKS. So, again, that's the sort of fiscal restructuring that, that could be warranted if the state wanted to notably renew these sort of programs.

Okay. I know many counties, not just here in California, but, you know, across this nation, have stopped having their county programs because of funding issues, and I trained at a county program at Cook County in Chicago, and then I worked at Parkland, which is another county hospital in Dallas.

And I know in San Diego, where I represent, we don't have a county hospital. And it's around the funding issue. So, I was just wondering how those were funded, because I do think that they definitely serve a need. And, you know, I think that most counties should, should have them.

In your report, you mentioned about the work requirements, and there was something around the possibility of the fact that they talk about 80 hours a week with a minimum of $580, which is based on the federal minimum wage.

But there was something in the report that said because we have a higher minimum wage, that there might be a possibility that those from California would not actually have to work the 80 hours, so is it—do you have to do the 80 hours or is that kind of up in the air?

Yeah, I'll defer to my colleagues if I get—if I mix this up too much, but the—it's our understanding that you have the choice of either doing it based on hours or based on sort of wages. And if you do wages, the Federal Government has a wage level it uses based on its minimum wage.

And, you know, the 80 hours, basically. Because California has a higher minimum wage, there's potential that you could hit that wage threshold, you know, before you get to those 80 hours worked. We did try to look at the number of people that might be affected from that approach.

The data were led to raising more questions than answered, so we weren't able to answer that question. So, there's some uncertainty about, you know, how many people would benefit from that, but that's our understanding of how that policy would work.

So, the states can determine if they're going to do it by hours or wages?

That's my understanding, yes.

Okay. Interesting.

Now, when you talk about the fact that HR 1 bans many people who exit Medi-Cal from being eligible or being able to access subsidies through Covered California, who are those people that you're referring to?

Those who leave Medi-Cal because of the, you know, community engagement requirement for not meeting that requirement. There's a provision that includes that prohibition.

Okay. Okay. All right. Want to thank you all so much. Like I said at the beginning, this report is very comprehensive, very thorough. I think that you've given us from the Legislature some things to really think about.

As to different areas in which we can potentially approach understanding that going in one direction may cause some issues in another direction, such as providing a larger proportion of tax on health plans that would also require us to bump up the ones on commercial health plans, which would then just be passed down to the individual consumers, which are already paying very high cost for health insurance.

And so, you know, definitely making sure that we are weighing all of the benefits, but also the, the potential repercussions of some of these changes that we may need to make.

But one of the things that you mentioned here, you mentioned on your sheet, which we have said many times, is oversight and making sure that the Legislature is involved in these things.

And so, really appreciate that and appreciate you all being here and look forward to continuing the conversations as we start to get more information from the Federal Government to help us determine how we're going to move here in this state. Thank you.

We will now move to the public comment portion of the hearing. If you are interested in making a comment, please come to the mic.

Brian Rutledge, California Association for Adult Day Services. I want to thank you for your leadership trying to get ahead of these difficult times. So, CADS is the voice of the CBAS program. We serve about 45,000 older and disabled Californians.

For the last few years, we've been focused on raising our rate, which has not gone up in 20 years. We are adapting our platform to meet the HR 1 era, trying to focus on protecting the program going forward. So, I would ask that you hold the line.

Any dollar taken out, any cutback that's going to actually raise costs, we're going to end up more people in nursing homes, so it's not a good budget decision. So, I just want to flag that. We look forward to working with yourself and the Committee going forward.

And then, I'm also a Board Member of the California Collaborative for the Long-Term Services and Supports, CCLTSS. I want to flag that we currently have three strategic priorities headed into the HR 1 era. First is to protect health care and HCBS for older and disabled Californians.

Second, to support caregivers who are the lifeline for the those vulnerable individuals. And the third is to focus on accessible and affordable housing, specifically for older and disabled Californians. As we all know, that's one of the fastest rising homelessness populations. So, again, we do look forward to working with you and being collaborative in a difficult time.

But the core concept for CMAS and LTSS is any cutbacks is actually going to raise costs by forcing it into higher dollar institutions. So, thanks.

Good morning. Michelle Gibbons with the County Health Executives Association of California, representing local health departments which have public health and then many, several have indigent care programs as well. The first thing we would like to encourage is that the Legislature really seek out opportunities to make sure that folks maintain coverage in Medi-Cal.

We know that as folks are uninsured, they do shift into, or can shift into, county indigent programs and those will need resources to restart and rebuild that infrastructure. They do not look the same as they did pre-ACA.

And as you had heard the LAO talk about, there's been a shift in funding that has happened as well and so we would really look forward to talking with you a bit more about those indigent programs and what those needs would be. I also just want to really uplift the public health infrastructure that's going to need to happen at a time where we have federal funds that are declining, so we are going back to pre-pandemic levels at best and maybe even lower than that.

And so, when you think about significant numbers of uninsured individuals, we used to have things like STD clinics that were a bit more dominant, predominant, throughout our communities, vaccination clinics, other public health clinics. And so, we really need to think about that infrastructure as we continue to navigate the impacts of HR 1. Thank you.

Thank you, Madam Chair. Cathy Senderling-Mcdonald, Catbird Strategies, here for the California Pan Ethnic Health Network. As you've heard, HR1 will eviscerate California's safety net, especially in health care. It doubles down on the harm that's already been done to communities of color, seniors, and our immigrant communities, by eliminating the federal funding California has relied on for decades. Patching a $30 billion HR 1 size hole in the budget is going to be tough.

We know that. It's estimated that millions of people will be affected by these changes in Medi-Cal alone, but we urge legislators to advance revenue solutions to help offset additional potential cuts to Medi-Cal. It's not the time to cut healthcare from families who are facing affordability crises all over. Do they put a roof over their heads?

Do they put food on the table? Or do they take their child to the doctor for that health care or for an urgent health need?

It's also not the time to cut optional benefits like adult dental, which was only recently restored, eliminate access to community health promotores or other representatives, or to cut other key services that these communities rely on. This year's budget unfairly targeted immigrants.

We urge the Legislature to revisit those decisions and other to cut healthcare for the undocumented and UIS populations and ensure that Medi-Cal remains accessible for all Californians.

If we keep chipping away at the parts of our healthcare system that are there when people need them the most, it's actually going to cost us more in the long run because we will have to rebuild those at some point.

In the end, we appreciate your support and your strength and just urge the Legislature, hold the line on Medi-Cal this year. Ensure that the budget doesn't continue to be balanced on the backs of our most vulnerable Californians and ensure that revenue is at least a part of the conversation. Thank you so much.

Good morning. Linda Nguy with Western Center on Law and Poverty. Echo many of the previous comments. We know that federal action will have a significant impact on the state's budget and California's Medi-Cal eligibility. The state can mitigate these coverage harms by not expanding beyond what is federally required, specifically by not imposing work requirements, more frequent renewals, and cost sharing on immigrant families who already bear the brunt of last year's budget Medi-Cal cuts.

In addition, we urge rollback of these discriminatory cuts that include enrollment lockouts, dental benefit cuts, and unaffordable premiums and really mitigate the harms by exploring all budget options, including revenue solutions.

Thank you.

Justin Garrett with the California State Association of Counties, representing all 58 counties.

Really appreciate the discussion today on county indigent care programs and sort of the understanding of these programs once being more robust prior to ACA and the Medi-Cal expansion and that the resources that supported those programs have since been redirected to the state for other programs.

And so, to the extent that those programs are going to need to ramp up and be responsive in this time, that additional funding will be needed to support counties in that effort.

Also, want to appreciate the highlighting of the county role in the administration of the Medi-Cal program and how essential counties are going to be to the implementation of the various requirements, including the work requirements.

And to the extent that counties can be supported in that work, that will help individuals and families maintain health coverage, which is paramount, but also support the state and counties and everything else dealing with on healthcare right now. So, thank you.

Hi, Kat DeBurgh with the Health Officers Association of California. Thank you for a very informative hearing today. No specific ask today, just wanted to lift up the public health infrastructure work at the state and local level that needs to continue regardless of Medi-Cal levels, regardless of anything.

We have vital public safety work of disease tracking, safety monitoring, food recalls. Just wanted to make sure that that was mentioned. And also on a personal level, I want to thank you, Dr. Senator Weber, for your line of questioning.

Having worked here for about 20 years now, if there's a button I could press that could change one thing about what we do at the legislative level, it would be to look at the budget outcomes not just for next year, but for 10 years from now, for 15 years from now.

And you got to the heart of that today, so thank you very much.

Hi, good morning, Madam Chair and Mr. Ogus. My name is Carly Holko on behalf of the California Pace Association representing the 38 programs of all-inclusive care for the elderly, serving 27,000 in chronically ill older adults in California. California has made major progress in expanding coordinated health care and home equity-based services, and these investments are working.

When people receive the right care at the right time, outcomes improve, hospitalizations decline, and costly institutionalization is prevented. Because of this, we strongly urge the Legislature not to balance the budget by cutting optional benefits, HCBS, or other long-term services and supports. These reductions may look like short term cost savings, but they will create long term costs.

Cutting community-based supports pushes people into emergency rooms and nursing facilities which are far more expensive and far less aligned with what Californians want. The state has already built a more coordinated and effective system of care, and we should protect that progress, not erode it.

Thank you for your time and your commitment to older adults and people with disabilities. Thank you.

Good morning, Chair. Beth Malinowski with SIEU California. Thank you for the hearing today. Really looking forward to working with the Budget Committee and the Legislature as a whole to design solutions that reflect a commitment to the health of all Californians in response to the cuts made by President Trump and the GOP Congress.

We also cannot ignore that the cut to Medicaid and drastic health policy shifts that we're seeing were also made to give large tax cuts to the corporations and the wealthiest Americans. Some of the very corporations that are also employers of the Medi-Cal recipients we're talking about today.

These corporations benefit financially and without a cost to them from having a healthier workforce, and we estimate the total cost of caring for this part of our Medi Cal population is likely around $28 billion.

Millions of work in California, as noted say, will also now have a paperwork burden on them which will also translate to additional cost burdens on the state and our local jurisdictions. So, we're really pleased for the conversation today and also the Senate budget action earlier this year to really set in motion a table to discuss this situation.

Right, how do we balance this corporate greed, how corporations are—can be—maybe held greater accountable for the financial costs of all of this on us as the public and the state and really as a partner in the fight for a health coalition, which was playing a major role in trying to stop HR 1 at the federal level.

So, we now bring that conversation here to Sacramento. Really look forward to working with you on this. Thank you.

Good morning. Eric Dowdy with the California Dental Association. CDA is very concerned about the proposed cuts to Medi-Cal Dental. The cuts, the Prop 56 rates, represent a 40 to 60% reduction and leaves about $576 million of federal matching dollars on the table. This would make the program unsustainable and drive providers out of the system due to the rates not being—not matching—the cost of care.

So, we urge the Legislature to reject the move, protect Medi-Cal Dental, and look at cost solutions. Thank you so much.

Good morning. Michelle Johnston with the National Multiple Sclerosis Society. Medi-Cal is more than just a safety net; it's a critical lifeline for over 20% of Californians living with multiple sclerosis. Managing MS requires lifelong care at an average cost of over $88,000 per year.

Access to prescription medications are critical for the people with MS.

To prevent further disease progression, it's essential that people begin an FDA approved disease modifying therapy as soon as possible after their diagnosis and ensuring continuous and adequate coverage reduces the risk of disease progression, prevents costly hospitalizations, and can enable people, like myself, who are living with MS to remain engaged in our communities and our workforce.

Since over half of people living with MS experience some form of cognitive symptoms, we're very concerned that navigating more frequent, complicated administrative procedures will make it significantly more likely that they lose access. As you determine how to address the budgetary and administrative challenges presented by HR 1, we encourage you to maximize the flexibilities available, many of which were mentioned in LAO's report, to address work requirements and lower the administrative burden on enrollees, such as by tracking through income, maximizing exemptions, and allowing for self-attestation.

Finally, many people living with MS do not need the level of care of skilled nursing but cannot remain and live independently at home without access to in-home care. This includes people in their 30s and 40s who live with primary progressive MS and are much better suited to live at home versus in a nursing home setting.

As the recent report prepared by ATI Advisory projected, if California sustained just a 10% cut to that core set of five HB—HCBS—programs between 2026 and 2030, the state would see a total net spending increase of over $1.17 billion over that five-year period and would also overwhelm the capacity of our skilled nursing supply.

While an optional service, HCBS programs are critical to lowering costs by keeping people out of skilled nursing. Thank you for your time.

Good morning, Chair Weber Pierson. Laura Lane on behalf of the California Association of Public Hospitals, which represent the 17 public health care systems, serving 3.7 million patients annually, or about 1 in 10 California residents. HR 1 imposes unprecedented financial pressure on the state's public hospitals and healthcare systems.

Medicaid reimbursements already fail to cover our cost of care and HR 1 further reduces what public health care systems will receive. HR 1's combined impacts will cost public hospitals annually approximately $4.4 billion.

The source of some of these losses weren't highlighted in the LAO's report, but are from reductions to federal match payments for emergency services and cuts to supplemental payments and match the significance of other provisions highlighted. Revenue reductions this extreme may lead to service reductions, facility closures, layoffs, and access issues.

As you develop the budget, we urge you to account for these federal revenue losses and their cascading effects on the providers who are California's healthcare safety net system and ensure that our safety net system is not cut any further and look to ways to increase state funding. Thank you.

Hi, Madam Chair. Chloe Hermosillo with the California Immigrant Policy Center. As a proud Co-Chair of the Health for All Coalition, we urge you to continue prioritizing immigrant Californians' access to Medi-Cal in next year's budget. We appreciate the work already done to hold the line from the initial proposals earlier this year.

But the enrollment freeze, $30 monthly premiums, and full elimination of dental benefits are disproportionately impacting immigrants who are already facing extreme attacks from the Federal Government as well as barriers from HR 1, including work requirements.

These cuts don't just harm undocumented residents, they also impact those lawfully present under the new unsatisfactory immigration status definition, including but not limited to DACA recipients and individuals with U Visas who are survivors of domestic violence.

We cannot continue to let vulnerable communities suffer and we're looking forward to to working with you all to defend Californians' right to health care. Thank you.

Good morning, Madam Chair. My name is Thuy Do with the Southeast Asia Resource Action Center. I echo my colleague Chloe's comment as I'm also here on Health for All Coalition and we urge you in any of the budget discussions to prioritize the health care access to all Californians, regardless of immigration status.

Our state must ensure that the health programs to our most vulnerable communities remain a pillar of our state's values and budget. Thank you.

Good morning, Madam Chair. Kevin Guzman at the California Medical Association. HR 1 includes devastating healthcare cuts that will impact millions of Californians. We're already seeing it during open enrollment. Monthly premiums are skyrocketing. Hundreds of thousands of Covered California enrollees are at risk of losing their health coverage and clinics and another hospital is already closed, with many more at risk.

California voters demonstrated overwhelming support to strengthen the Medi-Cal system and increase access to care with 67.9% of the vote last November with Prop 35, as the LAO report highlighted. And thank you to the LAO for the detail. HR 1 will impact California state budget including changes to provider tax rules.

These new restrictions make it even harder to sustain Medi-Cal and other safety net programs. The California Medical Association is already working closely with partners across the healthcare system to assess these impacts and identify solutions, and we look forward to continuing engagement with the Legislature and Administration to ensure that we continue taking care of patients.

So, thank you very much for the hearing today.

Nicole Wordelman, on behalf of the Children's Partnership, echoing a lot of my colleagues. We would suggest strong consideration of covering all immigrant communities in the budget negotiations and we are also very interested in exploring revenue possibilities. Thank you.

Good morning. Jaron Gaither here on behalf of the First Life Center for Children's Policy, just to ensure that children's needs and health care needs are centered as part of this HR 1 conversation.

So, I just want to say I appreciate the LAO report and the framing of the difficult conversations that the state will have to have as we navigate this uncertain political and financial landscape. But here at the First Life Center for Children's Policy, you know, we are concerned about young children being adversely affected.

As the LAO report mentioned, ways to balance the budget include either changes to eligibility or to benefits available for Medi-Cal members.

Over the past five years, California has made significant investments to improve the health and well being of young children who are covered by Medi-Cal and we should continue doubling down on these services and benefits that make meaningful connections for these families and their young children to their health care home, in a way that is culturally congruent and makes them feel safe.

Thank you.

Good morning. Diana Douglas with Health Access. Health Access, as Co-Chair of the Health for All Coalition, urges the Legislature in all budget discussions to prioritize restoration of Medi Cal cuts impacting immigrants in California. After a decade of advocacy to ensure full Medi-Cal coverage for the undocumented, California is now halting new enrollment.

Then we'll be downgrading benefits and charging monthly premiums in order to save money and reduce caseload.

Also want to note that lawfully present immigrants, such as green card holders subject to the five-year bar, who, for decades, have had full access to Medi-Cal, are now going to be losing dental coverage, having to pay monthly premiums. In other words, worse coverage for more money and more burden.

Health Access calls in the Legislature and the Administration to restore these cuts as soon as possible and to also explore ways for implementing HR 1 requirements to minimize harm to immigrant communities. We mentioned work requirements. I think finding ways to minimize burden and ensure folks can keep their coverage as much as possible.

We cannot continue to use health care coverage for our neediest Californians as the lever that we're using to balance our budget on-off for those who need coverage the most, especially not when many of the cuts impacting our state were imposed by the Federal Government to give tax breaks to the wealthy and wealthy corporations.

Many of these corporations have large numbers of employees on Medi-Cal, so hard working people have worse health care coverage, more paperwork burden, while their employees enjoy more tax benefits.

We ask the Legislature and Administration in these budget discussions seriously consider sustainable revenue solutions so that going forward, our state's budget decisions can uphold our values of care, equity, and access for all. Thank you, Dr. Weber Pierson, for convening this early discussion today.

Good morning, Madam Chair, and good morning, Scott. Thank you for your leadership. This was a very insightful hearing, and I know it's long in planning, but Scott, kudos to you for doing so. So, E.J. Aguayo representing today, CAFP, that's the Academy for Family Physicians, representing more than 11,000 family physicians, students, and residents throughout California.

We know we have tough decisions to make related to budget. These are tough times. We should, you know, double down on primary care. It is the only healthcare spending that saves money. Stable primary care system is the state's most cost effective tool for maintaining population health amidst federal and state budgetary pressures.

At the heart of ensuring that primary care, the least expensive, most effective part of the healthcare system continues, is not neglecting the foundational effort of making sure there are enough primary care physicians to serve Californians.

We also want to make sure that these budgetary pressures do not lead to damaging cuts to Song Brown for primary care, of course, graduate medical education. This essential program ensures a steady supply of well-trained primary care physicians and has a proven track record of graduating physicians who practice primary care in underserved areas.

These programs are more important now than ever to ensure we have a sustainable primary care workforce. Our members share concerns about federal cuts made to Medi-Cal, just as most folks here have expressed.

Family physicians stand ready to work collaboratively on solutions that avoid unintended consequences and use state resources to maintain a healthy, stable delivery system for all Californians. Thank you.

Thank you all. Thank you for those who were on the panels this morning. Thank you for everyone who provided public testimony, public comment, and thank you for all those who just came or have been watching.

As I stated at the beginning, this is the beginning of the first of many conversations that we're going to have to have over these next few years with this current Administration on how we can do the most to serve the most with resources that are being snatched from under us on a constant basis.

And so, with that, I thank you all. I hope you have an amazing day, and I look forward to continuing working with each and every one of you.