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

Good morning. Welcome to budget subcommittee number three in health and human services. I realized I'm the only subcommittee meeting before break. I don't know why I did that to myself. So I'm sorry.

On behalf of everyone that could have started our recess earlier. So we'll get through this as fast but with care as we can. Alright. We have mostly department of healthcare services. If we wanna get up to start with issue one, the overview.

Welcome back. Director, when you're ready.

Good morning, Chair. Michelle Boss, director of the Department of Health Care Services. I'll first start with an overview of, the Department and its budget. The Governor's budget proposes 229.1 billion total funds and 4,745 positions to support the Department's programs in the budget year.

Of this, about 1.3 billion is for state operations, and the remaining $227 billion supports local assistance. In terms of, this funding split, we have 49.5 billion in general fund, 138.5 billion in federal funds, 35.3 billion in special funds, and about 6.5 billion in reimbursements.

With regard to the Medi Cal caseload, in the current year, we estimate about 14.5 million individuals enrolled in medical. And then in the budget year, about 14 million. This reflects the reduction reflects the, continued medical redeterminations, under the no longer having the,

public health emergency, flexibilities. The freeze on enrollment for undocumented adults and reinstatement of the asset tests.

When we, the next two items on the local assistance and family, health estimates, I'll go through some of the big changes in those areas. Happy to answer any questions.

LAO, anything on the overview? Great. Perfect. Yeah.

Can we jump into a little bit on the prop 56? Sure. The cuts to the dental providers.

So the 2025 budget act eliminated the general fund supported prop 56 supplemental payments, for dental services effective July 1, 2026. So again, these are supplemental payments using general fund on top of the the base rates for these services.

The estimated savings in the budget year are 331.8 million general fund. We have engaged with stakeholders through various, meetings, the statewide stakeholder group, the Los Angeles stakeholder meeting, our Medi Cal Dental Advisory Committee, various meetings

with the California Dental Association and the California Dental Hygienist Association. In preparation for this change that is effective July 1, 2026, we have been releasing monthly provider bulletins starting in February and those bulletins will run through June.

We released an all plan letter for our dental managed care plans at the October, at 2025, and continue to have ongoing discussions with our dental managed care plans. The department since these are, a reduction in supplemental payments, is required to do a rate reduction

restructuring analysis, to, as we submit this information to CMS. We're required to do this by, the September, the last day by the last day of the quarter in which the the change goes into effect.

This analysis must review public feedback, historical trends, provider participation, utilization of these services. And so that's what we're we're in the process of completing.

What do we what do we think, is gonna be the real life impacts of the dental utilization?

We don't have that that analysis completed yet. We'll get we'll learn more through that that process.

And I've been hearing from stakeholders that the, the average is bringing back to the rates till like the early nineteen nineties. I don't know if that's the perspective, the view of the department as well. And does the department believe that the program can function with these kind of rates?

So these are these were implemented to address the budget challenges as part of the 2025 budget act. And so, these were supplemental, payments that were first supported by the, tobacco tax. And as those revenues have gone down, we're backfilled by general fund.

So as a a means to balance the state budget last year, this was implemented.

Sure. But do you think they can function with the reduction?

That that's what we will we will learn as part of this access study.

So do we have any assumptions on what we expect? We do not. See? And do you think this aligns with or like does it undermine our efforts? I know there's been an effort to increase dental utilization.

Does this undermine our efforts?

You know, data does show that increased rates does often, lead to increased provider participation. We don't have any specific data points on this. And I know the California Dental Association has done a survey, but the administration has not completed any survey in that in that regard.

I'm wondering if there's any perspective from the LAO in the impacts, for dental utilizations. I can't remember if you've produced a report on this.

Jason Constantouros, LAO. I'm not aware of a report we've done specifically in the dental area. But the the questions you raise are are really the the key questions before the legislature.

The legislature took many of these budget solutions to help sort of control spending growth in Medi Cal and also address sort of the the state's fiscal challenging fiscal situation.

And so if the if this is an area where the legislature sort of like to revisit it, it does sort of you know, raise the trade off of of what else needs to happen in the state budget to sort of balance the budget and address the long term deficit.

But I'm not aware of any specific dental report.

Director, you mentioned bulletins. What are the bulletins say? They they are just information to providers about this change that would go into effect. So it's really kind of the education about this the changes that are coming, starting July 1, 2026.

And and I'm sorry if I missed this. Has there been communication with CMS on this rate reduction?

Not yet. We would be required to submit the the public notice, by the end of the the fiscal year and then the final spa and kind of the rate access by the end the last day of the quarter in in which the the change goes into effect.

And do we report do we submit a report to CMS on

We will be required to submit a rate reduction and restructuring analysis. Yes.

Is that where you put together you mentioned in conversations with stakeholders. Are you are you putting that together with the stakeholders? So that we

it would include, public feedback, a review of the feedback that we've received, historical trends, provider participation rates, and service utilization. So this is what we have to submit to CMS as part of the the kind of approval to to eliminate the supplemental payment.

Does the public get access to that letter or report before it gets submitted? Or it gets submitted and the public gets to review it?

I believe we take in the public feedback and include it as part of the report. But in terms of reviewing the public report, I'm I would defer. I don't believe so.

No. That's accurate. And then providers also have a opportunity to submit comments to CMS directly as well after it is publicly available.

So the legislature won't be made aware of this analysis until after it's been submitted to CMS?

We I mean, we are happy to provide it earlier. I just don't have a date for when we will have this done. Okay. Yeah.

Okay. Thank you. We want to issue number two.

This issue two is the November 2025 Medi Cal local assistance estimate. And we'll provide an overview of the significant general fund changes in the Medi Cal program, from the current year and the budget year.

The November 2025 Medi Cal estimate projects a funding of 196.7 billion total funds. 46.4 billion general fund in the current year, and 222.4 bilion total funds and 48.8 billion general fund in the budget year. Year over year spending grows about 25 billion between the two fiscal years.

Key changes in our current year numbers include changes related to the managed care organization tax. And I know that's another item in today's agenda given the reduction in the kind of what we can assume for, managed care tax effective January 1, 2027.

Medicare cost growth, including, ongoing growth in just the Medicare population and our the higher premiums that we pay for that popular that's about 640 million. State only claiming adjustments.

We've made additional adjustments related to our state only claiming for members with unsatisfactory immigration status. And this includes about 819 million general fund. Higher benefit deferrals from the federal centers for Medicare and Medicaid services, and some additional quarters

from the state administrative deferrals. And then, changes related to our 2025 budget solutions, a change in the timing of the pharmacy rebate aggregator collection. We spoke about this last hearing. Just the timing of only being able to score one quarter's worth of savings.

And then, in terms of offsetting savings, so changes where we, actually have less general fund spend. We have lower utilization of fee for service, pharmacy cert benefits and inpatient services. And then, some changes in our managed care.

Compared to the current year, compared to the budget year, again, some of the changes in that space relate to our managed care tax, managed care base rate, base rate growth, increases both in enrollment and, just the rate increases, just base managed care rates,

2.7 billion general fund. The changes that we've discussed related to HR 1, the federal policies related to the change in the, and immigration F map percentage that we can claim and some of the, changes related to the work and community engagement requirements

and the semi annual redeterminations. Increases in the rate of, for fee for service pharmacy spend, the cost per claim amount of about, 900 million general fund. And then again, also increases in our Medicare cost growth, the higher premiums in the higher populations.

As I mentioned, we do anticipate, a reduction in case load, from current year to budget year to reflect the full implementation of kind of the normal operations with no longer having the federal flexibilities related to the, public health emergency, the asset, limit reinstatement, and again,

the enrollment freeze. Those are the the key significant changes related to the Medi Cal estimate and happy to answer any questions.

So what we've seen a very tiny decrease is it's around the 2% decrease from the assumptions, assumptions of the previous medical cases. We're seeing an increase with other variables. Our our cost increasing even though we're seeing a tiny.

So it's safe to say, while the case load is decreasing, the, the funding for medical is increasing because of other variables. So we could kick continue to kick people off but the cost is gonna continue to go up because all these other things are impacting.

I would just say generally the cost of healthcare is growing and Medi Cal is not immune to that. So a lot of these cost reflect those just general increases in health care costs. Some of the Medicare, the cost premiums that go up as a result.

And our managed care base rate increases similarly just to reflect the the base cost of of health care in the California and nationwide.

And while like I mentioned, the decrease right now it's it's it's like 2.1%, 2.4%. Is that a normal decrease in case though that trend that we see or is there something acute as it's starting to see a trend of what we've done and that's why we're seeing the decrease?

So I will say up until the last year or so, the medical trend was going up. Particularly when we held enrollment and didn't weren't doing the redeterminations. And so we had a peak of over 15 million enrolled in medical, as we were not processing redetermination. So individuals maintain eligibility for close to three years.

So we we were, you know, before the pandemic, we were probably close to, find right here. We were closer to about 13 million enrolled in Medi Cal. And then we've grown since then, and reflecting a height of about 153 million in 22-33, and 23-24. And then have started to go down starting in 24-25 reflecting no longer having the kind of the freeze in in redeterminations and then the various changes in, expansions.

Okay. So this is what we're straight this is now we're starting to officially see the the impacts of all of those stuff.

Correct.

And then, I had a question on the net savings part on the 50 million general fund savings for utilization management for hospice benefits. If you could explain what that is.

Sure. So that was part of, trailer bill that we implemented in, the 2025 budget act. Prior to the trailer bill, the state and managed care plans were prohibited from doing any type of utilization management or prior authorization.

So any kind of parameters by which to, approve or not approve hospice care. And as a result of this new trailer bill language that goes into effect July 1, 2026, anticipated cost savings based on potentially, you know, abuse of these services are just kind of, inappropriate use

of hospice services as managed care plans and the state can provide some more utilization management parameters, for these services.

Okay. I'm gonna go back a little bit to the dental conversations that we're having just because we're still in the in the medic house space. I know that you've mentioned you're doing you're getting the feedback and all that.

But is there anything else the department outside of having those conversations with providers and analysis of the actual impact this is gonna have on the overall medical program and just the impact on maybe clinics, ER's and so forth if people are going for emergency care?

So emergency services, dental emergency services would still be covered under emergency services. So those, those would still be covered, if individual, you know, shows up in an ER for something related to dental procedure. So those are still covered.

Okay. So I kinda wanna ask so do we anticipate providers leaving? Has there been a history that shows that yes, providers will leave? Can we turn to something that has happened before and we anticipate we'll do it?

I know when dental the the dental benefit was eliminated back in the So that was a different process. And I I don't I don't think we have any data to show, as rates have been cut or rates are cut, you know, the impact on provider participation in in any history that I've seen. Jason.

So we did look at some of this a little bit in a handout we did one or two years ago. It wasn't for dental specifically. We looked at physician rates. But the the conversation sort of broadly translates across provider groups. And, you know, changes in rates do, sort of affect.

I do have a correlation with access to care and you know the primary mechanism is provider participation. But there there really are two parts to provider participation. There's how many providers are in the network. And then of those providers that are participating,

how many are are prioritizing care for, you know, for beneficiaries. And my memory is going off of memory so it's always a little risky.

But my memory is that it was that latter effect that really where the rates had a big difference. Was less so on the on the provider participation in the network but in terms of overall utilization of services. And so increases in rates tend to be associated with higher utilization of services.

Not so much in the availability of providers.

They that can be an effect too but we we I my memories that we found a the the research tended to find a bigger effect on overall utilization.

Okay. Thank you so much, Jason, for that. Okay. Issue number three, please.

Okay. Issue number three is the November 2025 Family Health Local Assistance Estimate. The family health programs, include the California Children's Services Program or CCS, the gen genetically handicapped persons programs CHPP, and the everyone counts.

And these programs serve medically frail children and adults not eligible for medical with highly specialized, and high cost conditions. In terms of the overall fiscal, projections, the family health, so all of these programs in total, in the current year, we anticipate 292.8 million total funds.

264 of that in general fund. And then in the budget year, 307million total funds with about 280 million general fund. The key changes from our, last year's estimate includes an increase of 16.5 million general fund, related to just higher expenditures in the CCS and the GHPP program,

driven mostly by updated utilization data, and underlying medical cost trends. Especially just for for context, the GHPP program, the average annual cost per case is 350,000.

Both our GHPP and CCS programs are experiencing increased expenditures due to growth in pharmacy costs for the GHPP program.

And both growth and cost and higher cost per member. And then growth in the CCS therapy costs. All these programs do show slight reductions in caseload. But, kind of to the point that you raised earlier, the general fund spending continues to grow upwards, just given the

cost per case and the increased cost in pharmacy and just medical services. Happy to answer any questions.

Do you have anything? Okay. Yeah. I have a couple questions on the CCS program. I know we've talked, I think a couple years ago, we've talked about making the the website a little more user friendly.

And you know, I've visited recently. I have a couple constituents that you know, they're they're doing their due diligence and continue to reach out to my office regarding, you know, they had the unfortunate situation with their daughter and they were participants of this case.

But it's still it's not super user friendly and being able to apply for this benefit. You have to submit through your local social worker and you contact them.

I'm still wondering if I'm still hoping that we can still look at that website, to make it a little bit user friendly so that people can benefit from from this program.

So I'd love if we can get a follow-up on just elements that we can implement, Shutter, to improve accessibility. And then also, there was a bill that passed. AB 847 the SOPHIA's act that was looking to address a potential funding gap.

And I'd love it, director, if you can help me because is it safe to assume once you age out of the CCS, you go into the GHPP program?

They're different programs. Okay. So you

can't just transition. So once you hit once you're 22, you you're there's no available services for you.

Unless you're unless you're in Medi Cal, CCS Medi Cal and then you continue in medical for, you know, adults. I guess I would say.

So what happens once you're 22 and you're knowledgeable for medical and you can't afford these services? Like what what are real life scenarios there look like? What are options?

The their commercial coverage, covering these services.

And if you can't if you so if you can't afford that, there's no option.

We don't have a program for adults with the CCS conditions.

Okay. So someone's been on CCS like majority of their life once they're 22, the services stop?

I think it just depends on the services services we're talking about because they may be still qualify for regional center services. I think it it just it may be dependent on the types of services. So potentially, they may continue on a potential waiver program. It's hard to speak globally.

Jason. Sorry about that. I just wanted to emphasize that in the CCS program, you know, about 90% of beneficiaries are on medical too. And so, you know, the the income thresholds for Medi Cal are higher for for kids than they are for adults.

So some some people when they become adults they lose Medi Cal coverage. But for those who who stay in the Medi Cal program they still have access to those services through Medi Cal.

So it is, it's the the people who are affected are those who are, who don't have sort of Medi Cal coverage.

But it's, most of, most of the people in, in CCS have Medi Cal coverage.

Okay. And then I've been hearing also from county specific that the funding doesn't align to the case load of CCS. I don't know if you've heard any feedback from counties on that. If you could share a little bit more on that.

No. There have been ongoing discussions related to, county particularly the public health departments, the local health jurisdictions, the the funding levels and are they appropriate to support the work associated with CCS? There this has been a a topic for many years.

Is there a number that they've been asking for? Or does, do I have any number? Or what is that?

My understanding is about a $100 million request. I would defer to the counties but I think it's, that's about the range.

Do you know if they're asking for an ongoing? I believe so. Because of that, are they sharing that there's an impact? Like it's a long list, a long waiting list to get on?

It's difficult to, you know with Just from what you've been sharing. What they told you not. No, yeah. I mean difficult to maintain kind of the the timelines, the number of staffing that are required or, you know, to to serve this population and the families. It's, challenging for the counties.

Because cases have have increased? Oh, it's decreased.

The trends right now are that, the CCS population is decreasing but over time, I think, you know, these things become more expensive and the budget may not have adjusted appropriately.

I recognize the budget situation and all of that. I'm just wondering

So this earlier this year.

Did you ever make the list of the possibility of getting funded a little bit more? Is it all, you know, if

I will say earlier this year, we did clarify in guidance that the CCS, we'd there was a, a maintenance and operation kind of MNO funding that was really supposed to be available for, kind of the the revised or kind of amplified MNO activities that were new, over the last couple years.

We have clarified that, those dollars can be used kind of for a broader purpose to address kind of the concerns that we've heard. Recognize it's not complete.

Just to set a little more perspective on this. We we've heard from counties year after year about concerns around how they're funded for county admin. It it does seem to come down a lot to different views and how the methodology should work and it I think counties could speak better

to their perspective. But I did want to emphasize that this year you are going to hear a lot from counties on a variety of cost pressures. You've probably already had hearings where you've heard this.

And, you know, they'll range from, you know, workload requirements to implement HR 1 eligibility changes and, prep cost pressure to indigent care programs. And, the legislature may not have sort of enough budget capacity to fully meet all these issues.

So there there could be an issue of prioritizing. There there is sort of a key fiscal consideration with county admin for implementing HR 1 eligibility if we if we don't reduce the error rate for for Right. Fresh in HR 1.

We could be subject to penalties with So there is a there is sort of a a key fiscal consideration there as well. But, that that that there might need to be There might you might face some prioritization issues in terms of of accounting for all of these cost pressures.

Great. And there's a couple PCPs on being able to address that. Okay. And then on the woman counts program, we've made great strides to decrease the case load in this. Are we worried given all the changes to Medi Cal that now we're gonna have more people utilizing the every woman counts program?

And that it's gonna increase her.

That is definitely a a possibility. And every woman counts has a higher, federal poverty limit threshold. And so, it it is definitely something that we will be thinking through with with implementation of HR one and some of the other changes in the medical space.

Is this something that regardless of

how many people are in the program, we the general fund will cover those cases? There's, proposition, dollars 99 breast cancer control account and CDC grants that are all part of the funding situation but it is, also, general fund is off also used in this space as well. I don't have this funding split in front of me but, yeah.

Okay. And is it a requirement that regardless of how many people are in the program, we have to fund it or is is this something that I'm not saying the department is looking to cut, but is eligible for cuts down the line?

In the past, I would say I believe this it long ago passed that this was one of the areas that was, often explored in terms of how to address the program funding for this compared to the other changes, being considered.

Okay. Anything else to add, Jason, on this issue? Okay. Moving on to issue number four.

Good afternoon Chair. I'm Tyler Sadrick, State Medicaid Director. So I'd like to provide a little bit of information about provider taxes or healthcare related taxes and the way they're used in Medi Cal, the impacts of HR 1 on these taxes and, how prop 35 directs the MCO tax specifically.

So there are a few taxes that support medical today, the MCO tax, the hospital quality assurance fee or HQAF, and then, several smaller, quality assurance fees for skilled nursing facilities, intermediate care facilities, and ground emergency medical transportation.

Prop 35 directs the MCO tax to support in calendar year 2025 and in calendar year 2026, a variety of different clinical domains as specified amounts.

For general support of the medical program, the amount is $2 billion. For primary care, the amount is $691 million. For specialty care, it's 575 million. For emergency department facilities and ED physicians, the amount is 355 million. For community and outpatient care, it's 245 million.

For reproductive health, $90 million. For designated public hospitals, 150 million. For services and supports for primary care, 50 million. Ground emergency medical transportation, 50 million. Behavioral health throughputs, 300 million. Graduate medical education, 75 million.

And for the medical workforce, so the workforce serving medical, 75 million. So we are using a few different mechanisms to implement these investments and these include targeted rate increases that set a payment floor for primary care, maternal care, and mental health services

at 87.5% of Medicare. Managed care base rate increases, uniform dollar add on increases, state directed payments for hospital care, behavioral health throughputs, for county behavioral health rate increases, mobile crisis, transitional rent, and administrative expenses

for the CYBHI fee schedule, graduate medical education grants, reproductive health grants, and workforce investments. So happy to sort of transition into federal requirements and the impact of HR 1 on this. Okay.

So prior to HR 1, CMS and federal law and rules have always required healthcare related taxes to be either broad based and uniform or generally redistributive, which was defined in federal regulations.

They also must not provide any hold harmless, any direct hold harmless guarantee in the form of payments, offsets, or waivers. And they also must not provide any indirect hold harmless guarantee, which is defined in regulation.

So today, after HR 1, all of these requirements still remain in place. However, there are some new requirements as a result of the law. HR 1, in effect, prohibits new or increased health care related taxes after the enactment of the law with very narrow exceptions.

It phases down the maximum size for most existing taxes that are sort of grandfathered in. The current maximum amount is 6% of net patient revenue starting October 1, 2027. Existing taxes must phase down until they reach 3.5% of net patient revenue over a four year period.

And furthermore, HR 1 adds comprehensive new requirements for tax design and features that must be met in order for them to be deemed generally redistributive and thus allowable.

So the effect is that the law prohibits taxes from having a higher burden on Medicaid units as compared to non Medicaid units. So the impact of these new changes on our MCO techs specifically,

Our MCO text is not broad based or uniform and it's not generally redistributive under the new criteria. We do have a transition period through the end of this calendar year, which means our MCO text is actually fully intact and fully in effect for the period, that it was approved for.

So all prop 35 supported investments will end as scheduled at the end of this year, except targeted rate increases for primary care, maternal care, and non specialty mental health services, will continue. Proposition 35 calls for a substantially similar MCO tax, starting January 1, 2027.

That proposition also limits the amount of non Medicaid tax revenue to $36 million. This presents some challenges. In order to design a new MCO tax effective January 1, 2027 that uses substantially similar models and methodologies as the prop 35 tax, it just it wouldn't meet the federal requirements.

And in addition to that, that $36 million amount means that if we were to adhere to that as set forth in state law, ultimately, the net benefit to the state of a redesigned MCO tax would be roughly $6 million compared to roughly $7 billion per year today.

So we're evaluating options for a redesigned MCO tax in light of that state law and the federal landscape.

The hospital quality assurance fee or HQAF, also not broad based, not uniform, and under HR 1, not generally redistributive. We do have a transition period through June 30, 2028. We proposed to substantially increase the 2025 HQAF or the program eight HQAF.

CMS let us know that is not approvable because it does not meet HR 1 requirements. So based on technical assistance with CMS, we amended that request to match the level of the 2024 HQAF fee or program eight and we resubmitted it to CMS two weeks ago.

Happy to provide exact funding amounts if it would be helpful or happy to okay. For the next year, for the $20.26 fee, we plan to submit by next Tuesday at the same level.

What you were gonna find the numbers of how much we could potentially get?

Yes. I was gonna provide the numbers of the $20.24 fee that's in effect and the $20.25 fee that's been submitted, if it's helpful.

What's the $20.25? 1 that's been submitted.

It is, $6.1 billion in fees, which support supplemental payments and grants of $11.7 billion which is actually a $5.5 billion net benefit to hospitals. And in in addition to that, it offsets general fund cost for children's, hospital coverage by $1.3 billion.

And to quickly round out the other three taxes, the skilled nursing facility or SNF QAF fee is not broad based and not uniform. We are assessing whether it is generally redistributive and if it's not, we can make it so.

So we anticipate not significant challenges like with this, like we do with the MCO tax and HQAF.

The ground emergency medical transportation quality assurance fee is broad based in uniform. It will be impacted by the phase down of the maximum tax size that I mentioned but likely not in 2027 or 2028.

And finally, the intermediate care facility quality assurance fee is broad based and is uniform. Happy to answer any questions.

Tristan, anything to add?

You know, that was a pretty comprehensive walk through of the sort of issues. I know this is a very technical area. You've heard these issues many times before. I did want to just bring it down to really the kind of the core policy issue and really what's before the legislature.

And you know the, both the MCO tax and the hospital quality assurance fee are, were sort of made permanent in law by voter measures.

So really these are, these are things that can kind of continue in perpetuity and can be adjusted without legislative action. But you know, real really the issue here, at least in the short term, is that, you know, the both the MCO tech Especially particularly the MCO techs,

but also to to to an extent the hospital quality assurance fee, charge higher rates on medical services than non medical services.

And the reason why the state, pursued this is because those medical charges tend to be associated with drawing down more federal funds. The non medical charges tend to put more costs onto private providers which could then be, potentially shifted onto healthcare consumers.

And so really what the federal government is trying to do is to make these, more proportionate.

And so that really raises a key trade off for states. Do states continue to pursue a a tax or fee at around the same size it was in earlier years, but at a higher cost to private providers and their consumers? Or does the state ratchet down the size of taxes and fees?

Thereby avoiding that cost to to the private sector but also reducing funding to Medi Cal. And the other challenge though is that the the state does have some constraints of its own that that need to be factored in.

Again, DHCS walked through that. With MCO tax, you have prop 35 which places a limit on which you can charge, commercial enrollment. So without the ability to raise that, you you have to sort of reduce Medi Cal Enrollment. That's really what's driving the reduction.

So absent an amendment to Prop 35 either through the legislature or going back to voters that that sort of need how that would need to be implemented.

And then the in in concept that that trade off also could exist for the hospital quality assurance fee. But very recent federal guidance that DHCS communicated to us really does seem to suggest there isn't as much wiggle room here.

It does seem to be the case that we are fairly limited on what we charge in 2024, rather than pursuing that much higher 2025 fee that we originally requested.

And it also appears with the state may qualify for some extensions by by pursuing a relatively similar sized, one to 2024. And that that could be some benefit that would give the state more time to adjust the fee.

So in light of that, the the DHS's approach as we understand it seems seems reasonable. But these would be some of the key policy considerations for the legislature to consider.

Thank you, Jason. Yeah. Very technical. I was coming into this here and trying to make sure I memorized all these numbers and so I think I have a little bit of a hold on it kind of. I'll start with the MCO tax and kind of what Jason alluded to with the constraints on both the federal

rules and prop 35. If we were to move forward with the new MCO plan, with both adhering to both those things, how much revenue would we bring in?

Today, the MCO, it's a net benefit of about 7 billion general fund savings or the offset. With the existing structure and Prop 35, it would be about 6 million.

And we can't change the federal. Maybe we can change Prop 35. But what we need, you've said two options taking it back to the voters or the legislature.

The the measure does have provisions in it that allow amendments with a three fourths vote in each house. The amendments do have to align with the, intent and purpose. What what did I say that right?

It's not 23.

I'm sorry. Three fourths. Thank you. No.

It is three fourths.

Three fourths. No. That's why I was like, wow. Three fourths.

Okay. Okay.

No. No. You're right. I was just

You know, it's I sometimes need to speak so I Okay. You know, it happens. So three fourths. Yes. And, it also has to align with the purpose and the intent of the measure.

And so that would be, sort of the key area to explore is what what an what an amendment and sort of meet that sort of threshold. The the other option again is to is to go to voters and have the voters amend it. Which

And add to the 500 propositions we'll be voting on in November.

That would be in addition to anything else on the ballot.

Has the department explored the the former option in terms of the legislature? Has there been conversations with the stakeholders behind prop 35?

I mean, we are considering all kind of, you know, what are the possibilities here? Given what, you know, HR 1 requires and the definitions and the rule, etcetera. And, looking to admit revision to have some ideas in this space.

Okay. Great. Yes.

You know, I should also mention that, you know, this is also based on our understanding of the HR 1 rules today. We we're still getting continue to get guidance on it and our understanding is still evolving.

So if the legislature were to explore something with the MCO tax, they could also require some, you know, we would need to understand, you know, again the CMS rules and guidance to make sure that all aligns to it.

So it's an area where we're still looking learning more. And outside of those two options are addressing or tweaking prop 35 and bringing it back to us to vote on. Are there other creative ways the department is looking at for a new version of MCO? Or is that are those two the only options?

I think I would just say broadly, we're looking at kind of what are health care provider taxes and kind of the the governing rules in that space and what are ways we can think about generating whether it's the exact same revenue, but more than $6 million,

to support the medical program. So trying to think, broadly, in, in this space.

And I think I asked this question a couple, maybe last year. I've always wondered if we've gotten some analysis of what the impact were of providing the increase to provider rates. If in fact, you were seeing a distribution across California in terms of them actually going to serve

in the areas that are most needed. Like the impact of that, I think that I'm just wondering if we've ever analyzed the MCO tax and with that section of its impact.

We have not. And, to to be honest to the the even the 2025 increases that have been laid out, we didn't have certainty of those really going into effect until late last summer because of HR 1 and the uncertainty about the transition period, etcetera.

So there these dollars haven't all actually flown out to providers just yet because of the uncertainty with HR 1, uncertainty of the transition period, uncertainty of when if our existing MCO was approvable. And so these are I think

the first MCO?

It's the it's yeah. The the MCO that expires at the end of this calendar year. The way Prop 35, there were specific provisions for 2025 spend and 2026 spend. So the 2025 spend, we didn't have certainty that ARC MCU at the time last summer was actually still approvable or still

valid from CMS's perspective. And so, these not all of the dollars have gone out because we didn't want to, you know, release the dollars and not get the exactly.

Okay. And so the provider rates of 2.6 billion for 26-27, those are still gonna be able to go out?

Yes. With the certainty that we receive that our MCO is valid through the end of the calendar years. Correct.

Okay. On the HQAF, I know that you've some we've submitted it to the 2025 for approximately $6 billion and so forth. But it sounds like we're getting some direction that they want us to perhaps go to the 2024. Rates. It's looking like more likely that's what they're gonna approve.

How does the impact Are we gonna see potentially in May revise a change in addressing those dollars coming in?

So the May revise assumed a lower, program nine amount, given the uncertainty with what we originally Yes. I mean, the Sorry. The governor's budget assumes a lower Yeah. So when we originally proposed program nine, it was about a $8 billion net benefit to the,

hospitals at this revised version. And what is basically assumed in governor's budget, it's about 5.5 billion, but it was.

We underestimated in the January.

We did too. Because we knew this rule was in effect and we were we didn't have we didn't think we were gonna get to the level we thought before.

Yeah. No. That that's correct. The governor's budget already accounts for the reduction. The the the higher level was assumed last year, year but they've they've tried to account for it in this year's estimate.

Got it. Thank you so much. I forgot another question on the 2.6 billion for provider rates. As compared to Okay.

So I'm seeing 2.6 billion for provider rates for 26-27.

How much do they get in this budget year right now? For 2-526. Over the provider rates set aside.

While the department is looking at 2 it's I think it rounds to 2.7 billion and it's each year in '25 and 2026. So on a note

It's the same amount. Yeah. Right.

So on a on an accrual basis, it it sort of You can sort of average it out. The only difference there is on Medi Cal, we we have this more complicated budgeting approach where it's when cash goes out the door.

And my understanding is that a lot of these funds are still sort of to be released. And so there's been a there's a bit of a delay if you look in in terms of the actual governor's budget numbers.

But in terms of what the measure provides, it's 2.7 billion each year in 2025 and in '2026.

So the prop 35's in calendar year. And so, and then we budget obviously in budget year. So to Jason's point, it's just sometimes the lag or when things go into effect. But overall, the result eventually gets them to those numbers.

Okay. And then you spoke a little bit about the waivers that we applied for. And you've analyzed which are broad based, which are uniform and so forth. So can you clarify, is it the one, the HQAF that is broad based and uniformly or?

No. HQAF is not not broad based and uniform. I think it's the intermediate care facility for the developmentally disabled quality assurance that is broad based and uniform.

So only one of the options?

I'm sorry. The ground emergency medical transfer.

The GME is the only one. Is broad based Oh, okay. Okay. Okay. So for the HQAF, just clarify for me.

If we continue with the 2024 approach, so long as we keep that, we'll be able to do the HQAF?

Yes. Provided CMS is consistent with the technical assistance that they've provided to us. What they've indicated is that we do qualify for that transition period and if we keep it to the 2024 levels, it should be approvable. This is not written down in guidance.

This is based on some verbal conversation and technical assistance and so that is the best understanding that we have at this time.

One more question before I jump to you, Jason. And what does that translate in real life impact to the hospitals? And is it all the hospitals that would lose the reduction in the previous level of the HQOP?

So in effect, this simply represents less net benefit to private hospitals compared to what they were anticipating in the 2025 fee before HR one passed.

So more impact on private hospitals not additional impact on rural and distressed hospitals?

Some of those rural or distressed hospitals might be private.

That's true.

And and I will say they they didn't get these dollars. These were anticipated. They've never got it. They've never. So these are these are dollars that we were trying to get for 2025.

We applied to the Federal Government. HR1 it was never approved. HR 1 came and said you can't do that. So we had to revise our 2025 proposal. But they actually never received that increased amount.

Got it. Okay. Jason. Yeah.

Well, no. DHS just made the exact point I wanted to really emphasize which is when we're talking about both the MCO tax and the HQAF in terms of what's going to providers. You know, this really will look more like an opportunity to cost to them.

This hadn't been sort of the normal course of business for providers. Because the MCO tax had only recently been notably increased and only recently had been used for provider rate increases.

And then the prior the HQAF only been sort of recently proposed to be Increased. So it in some cases, you know, in the MCO tax, it'll probably look like more of a one time boost. And and then, in '25 and '26. But but it really isn't. It's really more of an opportunity cost.

I think that's a helpful way to think about it.

And a bigger impact on the general fund because we've scored a

lot of savings from it. And a bigger impact on the general fund. I I think that's a fair statement. The other thing I would also emphasize is we're we're taught, you know, the we're There's actually a couple of different policies. It's laid out.

I know your agenda lays it out. I know it's real There's a lot of moving parts. But we're really talking about the uniform requirement is really, the most immediate effect. There will also be There could be some other impacts long term that could affect things too.

The revenue limit is that under federal law is also scheduled to go down over time. So even if we sort of adjust, uniformity, we still have to. We may have to think about those. Okay. That limit too. There's there's lots of rules of play. So it there's a lot of it depends.

But it just it's just important to keep in mind that this will be a conversation the legislature may be having over multiple years.

Thank you. So what happened to the stakeholder group that prop 35 asked us to do? Is that all on pause?

No. Those continue. We we had one in January, to kind of go through some of these HR 1 changes to present, that if we had certainty through the end of the calendar year, we would be moving forward with the 2026 domains as outlined in prop 35 if we only had six months,

which is what we had certainty of it in January, what we would do. So we we continue those as required under prop 35.

Okay. And then, if we don't move forward with MCO tax past into 2027, do those stakeholders still meet?

I think it's just gonna be a matter if prop 35 is still in effect. Okay.

Thank you so much. Moving on to hold that item open. Move on to issue number five.

Thank you. So issue number five is a budget change proposal for implementation related to the managed care final rule. We are requesting one year limited term resources equivalent to six positions, four year limited term resources equivalent to 33 positions,

and expenditure authority of $12,310,000 total funds in budget year to support implementation and ongoing operations of new federal requirements from their 2024 rule that really overhauls a lot of managed care requirements.

And as part of this BCP, we are requesting four year limited term funding for 25 positions for which we received one year funding in last year's BCP. So this new final rule adds a lot of new requirements to Medicaid managed care delivery systems really focused on

heightened standards around access, quality, transparency and oversight. This includes new standards for appointment wait times, new secret shopper audits to validate compliance with those new appointment wait time standards, new website transparency requirements,

lots of increased reporting of financial data including medical loss ratio and in lieu of services or community supports. And a publicly facing quality rating system to publicly rate the performance of Medi Cal managed care plans.

Available for questions.

Jason?

Okay, great. To provide finance. Last week, I had some requests on BCPs and I was told that Cal HR doesn't like to do one to two year limited terms but this BCP is asking for one year limited one year limited terms.

I just want to flag that discrepancy of what I was told last week. So if we can do it here, that means we could do it in other BCPs.

Isabella Alioto, Department of Finance. There are some situations where we can do it. So it it may be possible with other BCPs. In this case, those one year positions where the workload was specific to two projects. So the timing aligned with that which is

Yeah. But the excuse I was given is that CalHR doesn't like to do it. It wasn't on the the type of work. So it seems like CalHR can do it. Just saying.

It looks like that it can be done.

It's possible. Yes. There's certain certain things have to be met in order to do so. So I don't have right in front of me what exactly that is. So it's not always it's not possible in every instance, but it is.

Okay. And then I had a question on like for example, the capitated rate development division asking for three positions for your limited. And they're gonna be conducting, so three analyst two positions.

They're gonna be conducting continuous and comprehensive monitoring. But what happens after four years is no longer needed to continue monitoring?

So at that point, I think the department would sort of revisit, to see if that workload is ongoing and continues. Perhaps additional limited term funding resources for those positions that are authorized.

It just when I was reading out the descriptions of these jobs, it just seemed like these are jobs that are seem ongoing. Like it's hard to it seems like you have to collaborate for more than four years or analyze for more than four years. I'm just.

I think that's an accurate, an accurate assessment. Okay.

58 positions is a ton. That's a ton. I'm not, you know, I'm on the state side. So I have allegiance to the state but we have the capacity. Well, we're asking for the capacity to be able to increase our our our our workforce to address these issues.

And then I have the counties coming to me and saying, we're being able to do that and you're not giving us the opportunity to do it as well. Just sharing the messenger here of some of those concerns that we're asking for 58 just on this PCP.

And we're meeting the moment, and we're asking the counties to meet the moment without the increased workload. Same question. You know, one information technology is the lead product manager.

And after that, I guess they don't have a lead product manager after they're done with their one year. They're only going to lead the project for one year.

For some of the, sort of more tech focused resource needs when it comes to standing up, sort of new website transparency or quality rating systems that do involve some sort of technical solution or data work. It naturally speaking, sometimes there is upfront IT related sort of planning that is temporary by nature.

Thank you for that. And no other questions here, or statements? We're gonna leave that item open, move on to issue number six.

So issue number six is another PCP related to managed care operations. This PCP requests the conversion of four limited term resources to permanent positions and expenditure authority of $607,000 total funds in budget year to monitor and enforce federal and state requirements

across a broad range of medical managed care areas. The core of this workload really centers on our obligation to verify that MCPs maintain adequate provider networks and timely access to care.

Specifically pursuant to our 2024 contracts and CalAIM waiver requirements that are distinct from those in the final rule. CMS holds the department directly accountable for these reviews including for monitoring, MCP's,

subcontractors and delegated plans, expanded reviews of behavioral health access as well as new long term care services that moved into managed care under CalAIM.

So the work is, you know, requires continuous data analysis, network adequacy reviews, stakeholder engagement, complaint, and provider dispute resolution and enforcement actions including corrective action plans or sanctions as necessary.

Any comment on this? It's available for questions. Okay.

Outside of, you know, there's some things that issue six is doing, you know, CYBHI behavioral. But issue five is asking for positions to kind of do the same exact thing on transparency, quality, oversight of providers.

I'm just, what's, like with the 58 positions you're getting in issue five, it seems like a lot of them are going to be doing similar work in this.

And so the goal here is to be able to sustain and continue that work. And the final rule BCP represents entirely new workload as a result of the federal requirements.

So while there is some slight overlap in terms of the focus area of say, access or network adequacy in managed care, there are some slight differences and the workload right now being performed, you know, in sort of the work being done by the positions being requested under

this PCP to continue these resources is sort of harkening back to workload that existed prior to the final rule implementation. Really focused on those new CalAIM and managed care contracts, 2024 contract policies and provisions that went into a place, went into effect.

And the four limited positions that are working right now that you're looking transition to permanent, what are they currently working on now?

So they are working on, long term care. So in, you know, really carving in skilled nursing facilities and sub acute facilities into managed care for the first time. So working on ensuring ongoing implementation of that and access network adequacy reviews of that.

The SB hip and CYBHI work that was being set up initially, I think now is really being looked into making sure that the sort of downstream network adequacy requirements that are part of our 24 contracts and CMS waivers, are being performed.

That's something the department historically did not do, was look at network adequacy and alternative access standards for delegated and subcontracted entities. And so that that's a lot of workload that these positions are doing.

So so would they stop that long term care work moving into?

No. That is ongoing.

Okay. They'll continue that work and they'll they'll add this to the workload. Okay. We're gonna hold the item up and move on to issue number seven.

Issue number seven is focused on a budget change proposal that is seeking to continue a resources in place to support a value strategy for hospital payments in medical as part of a BCP that was sort of one approved with one year funding last year.

So the department is requesting 23 permanent positions and one year limited term resources equivalent to three positions, and expenditure authority of $10 million $664,000 total fund, to develop, implement, and sustain a comprehensive value strategy for payments in hospital

settings in the Medi Cal managed care delivery system. So last year we received one year funding for this work. The non federal share, was comprised of, reimbursements derived from administrative fees on intergovernmental transfers or IGTs from California health data and planning fund.

So this request really provides ongoing funding for those positions and it shifts the non federal share entirely to reimbursements derived from administrative fees on IGTs.

Part of the request was to describe efforts to date to improve hospital reimbursements and the impact of HR 1. Happy to go there unless You have questions. Okay. So in recent years and especially in the past two years, the department has pursued significant increases in

state directed payments for hospital care settings. And just taking a step back to provide context, on average today on a statewide basis, Medi Cal managed care reimburses hospitals at significantly higher rates than Medicare for inpatient hospital services.

And for outpatient hospital services, the Medi Cal managed care rates are near Medicare rates. And this is really the result of the steps that we have taken to, enhance reimbursements to hospitals through the Medi Cal managed care delivery system through state directed payments.

So just for some examples, if you're interested in in some of the amounts for designated public hospitals, we increased the enhanced payment program and quality incentive pool from a combined $4 billion annually for calendar year '24 to $7.3 billion annually for calendar year '25

and ongoing, representing an increase of 2.8 billion annually for.

Revenues going to those hospitals?

Correct. For district and municipal.

When did that start?

It the increase started in 2024. Oh, sorry. The increase started in 2025. Apologies. For district and municipal public hospitals, we have a directed payment at the amount in calendar year 2023 was $200 million and we increased this and a similar pass through payments to

from a combined $500 million annually in '24 to $1 billion annually in '25 and ongoing.

So representing an increase of $500 million annually just for these hospitals. And for private hospitals, we are proposing to increase managed care directed payments and fee for service supplemental payments and grants from $11.1 billion in calendar year '24.

To $17 billion for calendar year '25. This is in addition to $500 million in support from the MCO tax. So just wanted to provide that context about in just the past two years of past two years alone, the extent to which we've increased hospital reimbursements and medical managed care.

And in addition to expanding the amount of these payments, we're also accelerating the timeliness and our ability to make these payments more quickly.

We are reducing the payment lag from the historical average of 21 months to fifteen months this calendar year. And our goal for calendar year 27 services is to achieve quarterly payments which approach approaches normal claims processing timelines. Happy to move

Last question? Yeah. Yeah. You can move into.

The HR 1 interaction. Yeah. So HR one really constrains our flexibilities and our options related to hospital financing. So, you know, as we just described, we increase some of these rates to Medicare rates for inpatient or exceeding Medicare rates with some even

approaching average commercial rates. This is critical, especially to hospitals experiencing financial distress.

HR 1 sets new limits on state directed payments, which are the primary mechanism by which we make these payments that I'm talking about. HR 1 establishes a maximum amount at the Medicare rates, so they cannot exceed Medicare.

And so as a result of HR 1, we are reducing state directed payments down from current levels to the level of Medicare.

In addition to the cap on state directed payment levels, HR 1 also prevents growth that we had been sort of, you know, proposed or possible future growth in the hospital quality assurance fee.

So we talked about previously the, sort of, the cap on the net patient revenue in the hospital quality assurance fee, so it can't grow further, And it also imposes new stringent requirements on the tax model related to it being generally redistributive.

So it doesn't sort of terminate HQAF, but it cabins it.

So given all of these changes, the goal of the the BCP and the hospital value strategy is to really achieve sustainable levels of financing and reimbursement for hospitals, navigate the sort of new federal landscape and secure sort of federal approvability of these

financing streams and also take a step back and ensure we have a strategy to align payments for hospital care with the appropriate incentives including value and quality and making sure that hospital outpatient care is not disincentivized as well.

Okay. Anything else? Yeah. It sounds like there are really two issues here on issue seven. The first is just the the BCP itself.

But then you you're also speaking to sort of broader issues in hospital financing and and the interaction with HR1. So on the on the proposal itself, we haven't raised concerns with this proposal. But I did wanna note that it appears the administration is also supporting the value strategy

through its additional statewide contract with the Boston Consulting Group. This was part of a budget solution that was enacted last year to help identify operational efficiencies in the state.

And that that's a more kind of a a short term initiative and it still remains unclear to us how, the the work that the Boston Consulting Group would interact with the proposal here and also how that would sort of generate savings.

So we're still working with the administration to better understand these interactions. On the broader issue of sort of the impact on hospital financing, the department gave a pretty comprehensive overview of some of the recent efforts.

I just wanted to note that, you know, this is a very technical and complicated area. And, there there are some things to just keep in mind when you're when you're thinking about it.

A key one is that there there's often a difference between sort of gross and net reimbursement.

And that's because hospitals, contribute towards help contribute towards a non federal share of cost. Public hospitals do this right by reporting costs or through fund transfers. Private hospitals do this through the through the private hospital fee. They HQAF.

And so, you know, when you're when you're considering, you know, how how things compare to Medicare and what the sort of cost is, you know, it's always helpful to think about are we talking about, I don't know, a gross basis or a net basis.

It has different implications. The limits that are in HR 1 are on a gross basis. So when it's when they have to be at a 100% of Medicare, it doesn't matter if it's the contributions are coming from the hospital or the state. It's the same to the to calculating the limit.

So it it could mean that the net effect the net benefit could be could be less than Medicare in some cases depending on how that's implemented.

So it's help just helpful to keep in mind.

Thank you. I appreciate it. You shared some examples on increasing the payments and then the payment lag. But how can you share a little bit about how you're doing that?

For example, can you start with you've decreased the payment lag, you said down to 15 months and then you're going to do it to quarterly payments. What did you implement to get to that point?

That's a great question. To be honest, I will have to follow-up with you to get those details.

Okay. It would Would that be the same for the increases in payment?

In in terms of how are we increasing the payment?

Yeah. How are you increasing payment?

That's we're increasing the payments through the the the preprints and the packages that we submit to CMS for approval. So that's part of sort of the submission process and then these go through a federal review process.

So we're just submitting in a in a way that brings down additional dollars?

Yeah. No. It we had prior to HR 1, we had room under under previous federal rules about how much we could we could draw down in federal funds using directed payments and also from the hospital quality assurance fee.

And so the department was was taking advantage of the of this additional room. Previously, we we you could you could pay up to what the average amount is in the in the commercial, for commercial health plans.

And so we were far below that, limit. As my understanding, I we the exact calculation I'm not sure of. But we we were below that and so the department was taking advantage of that additional room. With HR 1 now imposing new limits that are that are a bit lower that will

affect sort of the the plans here. But we were we we had room under them so they were taking advantage of that.

So these increases that you shared are not gonna be ongoing? We won't be able to see those kind of increases?

That is correct. Because those some of those increases exceed Medicare levels and they approach, as LAO mentioned, the average commercial rate. And that that was done in tandem with sort of CMS technical assistance and learning about that as a possibility.

That was also memorialized in the 2024 final managed care rule, where they set average commercial reimbursement as the limit for state directed payments. So we are moving in that direction, and the non federal share for some of this is the hospital quality assurance fee.

So as you grow sort of the size of the HQAF that enhances your ability to grow the state directed payment levels. Again, average commercial rate being the limit in the CMS funnel rule, HR 1 has brought that down to the level of Medicare. Okay. So we have to drop them down accordingly.

Okay. And then you mentioned we don't want to de incentivize outpatient care, right, and so forth. With the value based strategy like, but how do we put that into practice given, you know, hospitals having to now, where they're gonna, right?

Seeing a lot of more at their emergencies and uninsured care. How are we taking that into consideration?

Yeah. Absolutely. And so right now, our rates are higher on average for inpatient care than they are for emergency department care and outpatient care. And so part of the hospital value strategy will not only be simply complying with the new federal requirements and sort of

devising devising methodologies to secure the funding we can, but to take sort of a holistic view at what are the incentives in place today in our financing and our sort of redesign.

What is, you know, maybe steering or incentivizing inpatient care versus outpatient care and given potentially uncompensated care, uninsured care as a result of disenrollment from HR 1, our emergency departments.

An entrepreneur that they're gonna be seeing?

Yep. Okay. So that's part of the sort of the global the global analysis and strategic planning that would go into this.

Okay. Thank you. We're gonna hold the item open. Moving on to issue number eight.

So issue number eight is the skilled nursing facility financing extension. It's it's trailer bill language that proposes a one year extension to the current statutory framework, for the Medi Cal long term care reimbursement program.

So this maintains the skilled nursing facility or SNF workforce standards program, which provides enhanced workforce rate adjustments to facility to facilities that maintain a collective bargaining agreement, participate in a statewide multi employer labor management committee,

or meet basic wages and benefit standards. The TBL maintains the accountability sanctions program, which imposes sanctions on facilities that fail to meet quality measures.

The TBL maintains the annual growth rate for SNFs, which is capped at 5% for labor and 1% for non labor costs. And it extends state statutory authority for the SNF quality assurance fee of the SNF QOF, which is one of the health care related taxes that we discussed,

which adds over $600 million in state revenue annually. The TBL does not propose to reverse the elimination of the sniff workforce quality incentive program elimination that was part of last year's budget as a budget solution.

But as noted, the TBL does maintain the workforce standards program as well as the annual growth rate and this rate enhancement is unique to long term care facilities. The department is exploring potential new components for a 27-28 SNF financing proposal.

We have a robust stakeholder engagement process with over 20 external meetings to date. We don't have proposals that are final yet, but we are exploring a range of ideas to sort of redesign financing for these facilities including patient centered acuity based rates,

performance incentives for appropriate care transitions, more flexibility in managed care plan rate negotiations, and streamlining aspects of the workforce standards program and the accountability sanctions program. We anticipate a new phased implementation beginning in 2028.

Because I know you all wanna comment.

Karina Hendren, LAO you're just available for questions. Okay.

I'll start with the most recent comment on the third question that you answered. In my four years here, I've heard about childcare rate reform, developmental disabilities, you know, the true cause of childcare, foster rate true cost.

And now this is another form of a rate reform. And in all those, we have not seen success yet. I have no confidence that we're gonna get another financial proposal and it be implemented.

And provide some reprieve or some, you know, light at the end of the tunnel that we're gonna be addressing and increasing the rates according to the true cost and so forth. It gets keep getting pushed back and back all these rate reforms that I've seen so far on sub three.

I also don't know if you two are gonna be here next year. I don't know who's gonna be leading this administration. And giving these polls. I don't scary. So I'm wondering and hoping that we can do a one year kind of safety net or safety for the SNFs given the uncertainties of

next year with the new administration, new goals, what have you. But also the we're batting zero here with rate reforms in sub three. I know not under DHCS, just under HHS as a whole. That it's really hard for me to confident be confident that like, hey, we're doing this.

So hold off. This is why we need to eliminate the WQIP or we don't, you know, we haven't renegotiated a new contract because we have a plan in place for this new financing proposal. So I don't have a lot of hope in that.

Department of Finance, how much would it cost to do a one year extension of the WQIP?

I don't think we have that. Natalie Griswold, Department of Finance. So right now, I think we're currently measuring about a 149,000,000 in general fund savings in the budget year related to the WQIP. I don't think we have the specific analysis.

Should that be the same then if that's a savings?

So I don't know if we have the specific analysis of putting it back in per se, but those are the savings we're measuring right now.

Safe to say if that's a savings, then that'd be the cost.

I think that's a pretty good assumption. Yeah.

Pretty, and then, is it I want to know if I'm understanding this. So if this is correct as I was reading. Have have SNPs been accustomed to a QOF for over twenty years?

Yes, I was just gonna maybe yes. The the SNPs have had a QOF. And I will say they are one of the few providers in the medical program that is a guaranteed rate increase between 35% since the QOF has been in existence.

No other medical provider has really had that guarantee in a rate increase, every year. And I will say, you know, in terms of rate reform, they SNPs used to be funded based on cost, and we would essentially almost pay cost based on different categories.

What we're trying to do here and what the transition has been is now part of the managed care program. Right? Kind of having that ability to seek value from these dollars, and it's not just based on cost. So that's kind of the next step in the rate reform that we are speaking to.

So when we speak about rate reform, it's not necessarily increases because these facilities are already getting those increases guaranteed by the, you know, the last iterations of the cloth statute.

And so I think there's a different distinction in how we're talking about rate reform. We're really thinking about how do we pay facilities to incentivize value, to incentivize transition in care, etcetera.

So we don't have sanctions and so forth. Have we ever sanctioned any of them?

This is a new process that was authorized under the last COF. And so I think we are in the process of working through that right now.

The wait. The one that was

It was, 2020

There is no. 2022. Yeah. Yeah.

Yeah. So we haven't sanctioned anyone in the past four years?

Go ahead. I mean, it takes time to build the data up. Right? Because you the data, the measurement year starting and I think it started in 2023. The measurement year and and then getting the data from CMS for some of this information to actually hold them accountable.

You think about

Don't tell the public that. Sorry. That's that's, that's disappointing. Okay. Okay.

I am interested in this space to, you know, if the goal is to do the 2027-28 plan and it sounds what I'm assuming I'm saying this because you're doing that, let's hold off on anything until this comes life.

I don't know if that's the department's position as to the extension of the not renegotiating.

So the purpose of extending was to go through this process. We just did not have enough time to really we didn't want to just extend what we were already doing. We wanted to have a thoughtful process.

We got resources last year to bring on a consultant to help us look across across the nation.

How were skilled nursing facilities and and other such facilities funded and have a really robust stakeholder engagement process to really think about how to pay our skilled nursing facilities differently than we've done in the past.

Why are we so late in getting that going if we got the if we could have started this last year?

We just got the resources in last year's budget and we started the process this fall. So I don't think that we're Okay.

So we got the funding in July. July 1. But we haven't started any of the work.

Oh, the the work process. Oh, yes. That's all started. And I think we're having I mean, we're getting great feedback on that process and the engagement with industry. But but not having a fully baked product available.

I mean, as you're going through this process, why can't we just bring back the WQIP for one year? Not I know it's a hard question for you. I get it. But I'm I'm interested in finding out. Department of Finance, if we're going through this process.

You need more time to go through this process. During that time, they're not getting a renegotiation of a contract that expires at the end of this year. And they're also being asked to take on an additional year of the elimination of the WQIP.

Because department needs more time to go through this process. I am interested in seeing if we can look at a bringing back the WQIP just for a year while we go through this process.

In the greater scheme of things, 149 million. I get it's a lot. I know it's a lot. I sometimes it's not though. But I am interested in that and I wanted to flag that and put that on the record.

But I'm also would like to know what was stopping us? When would a when would we have started the negotiation for the contract? What's the regular timeline? Knowing that it expires at the end of this year. What's Yeah.

So it would have been part of the governor's budget or may revise of this year.

So negotiations would have started this year?

We would come forward with the proposal likely trailer in the language that would have gotten adopted in June. To have a new, sniff cough.

Okay. And and we're not because of this financial proposal? Financing proposal?

Right. We're requesting a one year extension of the existing methodology to continue the the work group discussion and really reform how we're doing this work.

Okay. Director, you mentioned did you say regardless of any of this, they're still getting increases?

Yes. They they get a 3.7% rate increase. When was that?

The last one. Every year.

Okay. Skilled nursing facilities again are one of the only medical providers that get an annual increase usually between 3.2% to 5%.

And so just to put a size on that, the amount of that increase is $242,000,000 total fund between '26 and '27.

Every fiscal year they get that?

The amount varies but it's within the range that the director shared.

And

it's fiscal not, It's a fiscal or budget years. There's

just one calendar year. The next one. How's the calendar?

So So they just got it in January.

So from '25 to '26, I don't have the number but we know from '26. Budget then.

So '26. That thing. Yeah.

'26 to '27, it's the 242,000,000. It's the 3.7%.

Okay. So they just got 13 months ago. Okay. Okay. LAO, anything else you wanna add to this?

And to our finance, any additional things to add to this? Okay. Moving on to we're gonna hold that in a moment, open and move on to issue number nine.

Issue nine is a budget change proposal related to the long term care payment transparency final rule. We request the department requests ongoing expenditure authority of $2,537,000 total fund with the non federal share coming from the long term care quality assurance fund

to support the implementation of new data reporting requirements under this, federal rule. Last year the department received eight permanent positions with only one year funding through BCP.

This request provides ongoing funding for those eight positions and additional contract resources. These are necessary to continue implementing the Medicaid institutional payment transparency requirements, which must be implemented no later than June 21, 2028.

This is a federal requirement, and there there is a question about if, you know, the minimum staffing standards of the federal rule are unenforceable until 2034 due to a sort of a pause from HR 1, why is this requested?

This is requested because this part of that final rule remains, in effect, it remains a requirement. So while the minimum staffing standards, are not sort of enforceable right now, by CMS, this is.

And so last year, this department and the Department of Healthcare Access Information requested one year limited term resources given uncertainty with how HR 1 or the administration would change their implementation of this rule.

But this rule after the passage of HR 1 remains in effect and so these resources are required to satisfy those federal obligations.

Okay. I don't have any questions on this one. We're gonna hold that. I'm open. Move on to issue number 10.

So I can provide a brief overview of the request for chapter legislation, for Senate bill 660.

I don't like that member. You don't have to explain the I know the bill very well.

I knw very well. Just my only question is that during the probe CCS didn't have any cost associated to this to this bill. Just came out of miss that last year?

So I think for some of these bills, there's a timing issue with respect to when the fiscal that we're able to produce can be sort of, finalized with respect to where it is in the appropriations committee.

And so that accounts for the discrepancy between these these BCP resources and the fiscal impact analysis and what DAF has provided previously.

Since most of the work, I thought all the work was gonna be moved to HCAI. What's gonna be DHCCS role?

We have to oversee sort of Medi Cal managed care plan compliance with the, you know, the new aspects of this. So revising managed care plan contracts, developing new policy guidance, establishing new monitoring and compliance standards.

But HCAI won't develop even though I moved to HCAI, they won't develop the plan?

Right. They would not be responsible for administering sort of the implementation of this within the medical managed care program including issuing policy guidance directly to MCPs overseeing it.

I mean they they would you know moving the stage kind they largely own it but we implementation.

Okay. Before I move on, I know you have other presentations in this in this PCP.

In this for your bill, it's one permanent position expenditure authority of a $178,000 total fund. Happy to move on to the more bills.

Yes. Got it. For Senate Bill 246 the department requests one permanent position and expenditure authority of a $165,000 total fund, the non federal share from reimbursements to implement a graduate medical education program for district and municipal public hospitals

and their affiliated entities. So this is necessary to operate GME payments to the district hospitals. Happy to provide a status update if it would be helpful.

For assembly bill 543 the department requests four permanent positions and expenditure authority of $698,000 total fund to monitor compliance with provisions of the bill including preparing and conducting audits, reviewing payments, ensuring compliance,

monitoring drug use, checking provider records and supporting Medi Cal managed care plans.

On on this one, because we talked about it, I think in the first hearing around, you know, HR 1, homelessness. How would this how how would these positions in particular intersect with the the coverage in homelessness?

So I know that for this bill, part of the, you know, sort of discrepancy between the the the PCP here and some of the fiscal analysis coming out of appropriations is that we did provide technical assistance into this bill, that aligned the definition of homelessness with current departmental

policies. Our TA also helped eliminate the need for sort of costly system updates to Kelsas. In terms of your question, Senator, I might have to get back to you on the particular details.

Right. Just because, you know, this position is gonna help deliver health care services to individuals experiencing homelessness. Just how that seems like a connection with the impacts of HR 1?

Yes. I would there's overlap in terms of the individuals experiencing homelessness being perhaps at highest risk of potential disenrollment as it relates to the work requirements. So you know we are taking significant steps through policy and through you know in person on

the ground implementation supports to protect individuals experiencing unsheltered homelessness from losing medical coverage or or to help them gain it in the first place.

Right.

I think in tandem with that, this bill provides sort of new policies and new requirements related to street medicine providers or field based providers. And so in order to implement those new sort of policies and technical standards within the managed care delivery system,

some new resources are required. So you know, the goal in some ways would be to enable those providers to you know, be able to deliver medicine more freely to this population. I think is the intent of the bill.

And under HR 1, supporting those providers to also assist members with.

Seems like an organic fit there for yeah.

Yeah. There's definitely some synergy. Okay.

Any comment? Okay. We're gonna hold that and I'm open move on to issue number 11.

So issue 11 is a BCP requesting three year limited term positions, three year limited term resources equivalent to 18 positions and expenditure authority of $3,479,000 total funds to plan and implement the CMS, the second final rule CMS has implemented regarding interoperability.

So this is specifically the advancing interoperability and improving prior authorization processes final rule in 2024. Just as context, several years prior to that there was a patient access, focused interoperability rule for which, the department received some resources. This final rule is different.

It requires implementation of standardized data exchange including payer to payer and payer to provider data exchange using secure standards based application programming interfaces or APIs.

The rule also requires enhancements to prior authorization. The resources requested in this proposal will work to develop policy guidance and then contract language, develop a strategy and enforce compliance across impacted payers and entities. And as with all federal requirements, we do face the risk of loss of federal financial participation from CMS if we're non compliant. And of course, you know, implement successful implementation of this final rule would really improve data exchange enabling greater care coordination and outcomes for members.

No questions for me. We're going to hold that item open. Thank you for joining us.

Thank you, Senator.

We're now gonna be moving into the California health benefit exchange, Covered California.

Good afternoon, Madam Chair. My name is Katie Ravel. I'm the Director of Policy Eligibility and Research at Covered California. I'll address the first three questions in your agenda, and then I'll turn to my colleagues at the Department of Finance for questions four and five.

So I'll start with an overview of Covered California's mission and programs. The Affordable Care Act, which was passed in 2010, dramatically changed the individual health insurance market.

A key component of the ACA was creation of health benefit exchanges that offer comprehensive health plans with income based financial help to lower premiums and out of pocket costs for individuals who don't have affordable coverage through an employer, Medicaid, or Medicare.

And Covered California is, of course, our state's health benefit exchange. Our mission is to increase the number of insured Californians, improve health care quality, lower costs, and reduce health disparities through an innovative competitive marketplace that empowers consumers to

choose the health plans and providers that, give them the best value. We contract with 11 health insurance carriers throughout the state, and our members can choose from several coverage options that vary in the amount of monthly premium and out of pocket cost, as is described very well in your agenda.

Between 2020 and 2025, state and federal action built on the foundation of the Affordable Care Act to provide more support to our enrollees to afford coverage. Federal action included the enactment of the enhanced premium tax credit, which was initially authorized by the

American Rescue Plan and then extended by the Inflation Reduction Act through 2025. California also took several nation leading steps to reduce cost for Covered California enrollees, including implementing the California premium subsidy program, which started in 2020,

and later implementing subsidies to reduce out of pocket costs and provide health care subsidies for striking workers. For the 2025 coverage year, Covered California offered the highest level of financial assistance in our history due to the availability of the federal enhanced premium

tax credit and the California enhanced cost sharing reduction program. That program was made possible by the 165 million appropriation from the healthcare affordability reserve fund.

Covered California uses funding to eliminate deductibles in our silver plans and lower costs for key services like primary care, outpatient mental health, and prescription drugs.

This led to record affordability, which pushed our enrollment to an all time high, just shy of 2,000,000, enrollees, which I reported, to this body last year.

But to move to question two, which is an update on our most recent open enrollment period and the impact of the expiration of the enhanced premium tax credit, which your agenda notes, Congress did fail to extend that enhanced premium tax credit.

So it expired on December 31, 2025. With that expiration, Cover California estimates that our enrollees will lose about 2.5 billion in premium assistance for 2026.

More specifically, our technical assistance has estimated that monthly premium costs could on average double for our members, about 97%. Our middle income consumers no longer qualify for a federal tax credit, and this impacts particularly those who are older or live in high

cost areas, and they see even more extreme increases in their premium. And using national data, we've estimated that over time, as many as 400,000 Californians could drop marketplace coverage due to this loss of affordability.

So to give you an update on our open enrollment period, that closed on January 31. After doing everything possible to support our consumers through these changes and making their plan selections, we're now tracking our enrollment trends.

In the most recent period, 1,900,000 Californians were signed up for coverage at the close of open enrollment. This was a 3% decline from the same time last year. Our new enrollment was down by 32% and at its lowest level in years.

We saw about a 110,000 fewer new sign ups compared to last year. New enrollment among our middle income Californians earning above 400% of the federal poverty level or $62,000 annually declined by 59%.

And more consumers opted for lower level bronze coverage, which has a lower monthly premium, but a higher deductible and higher out of pocket costs.

I would also note that we're closely tracking our renewing population as well, though it is a bit too early to see the full effects of their loss in financial assistance. But we are seeing some emerging trends.

About seventy three percent of our renewing enrollees who switched their health plan during the last open enrollment period switched to bronze as compared to 2025.

So we're seeing enrollees drop to lower level coverage, in an attempt to keep their coverage.

And termination rates among our middle income consumers are nearly double what they were last year. So 22%of all of our renewers with incomes over 400% dropped compared to 11% in the prior year. We're closely tracking our enrollment for this renewing population.

These consumers, if they have not paid yet for 2026, they're approaching the end of their three month grace period. And we are watching to see what happens with enrollment over the next month.

I will say, the last thing I'll say in this question is that while these numbers are stark, we are seeing less severe coverage declines than the rest of the country, and we do wanna highlight the meaningful impact of California's continued leadership to keep coverage affordable.

So the legislature appropriated $190,000,000 from the health care affordability reserve fund to cover California for 2026.

Currently, these funds are providing premium assistance for our lowest income enrollees with income up to about a 165% of the federal poverty level, dollars 26,000 annually.

Of course, the 190,000,000, we knew could not backfill the loss of the federal enhanced premium tax credit, but the program is making a difference. Nearly 390,000 enrollees are benefiting from this program.

And our renewal rates among the members who qualify are holding steady to what they were last year, unlike the significantly higher cancellation rates we're seeing in our higher income groups.

The last thing I'll mention on this item is that, as always, Covered California is committed to data sharing and transparency. And in the coming weeks, we'll be posting an interactive dashboard so that all interested parties can track our enrollment trends as the year goes on.

I'll happy I'm happy to move to question three unless you have Okay. That question three is an update on the implementation of gender affirming care program pursuant to AB 144.

Cover California is underway implementing this program. It's very early in this, first year program. We're working with our carriers to better understand their actual claims cost as this is the first time that the state has had to pay cost for these claims.

And as we have more information from our carriers and actual cost, we will be working closely to share that with the administration and the legislature. With that, I'll turn to Department of Finance for questions four and five.

The timeline for general fund repayments to the Healthcare Affordability Reserve Fund includes 200,000,000 in budget year 26-27. 262 million in 2027, '28, and 309,000,000 in 2028-29. Okay. Moving on to question five.

Department of Finance. For question four, the total loans issued from the Healthcare Affordability Reserve Fund to the General Fund amount to 771 million.

I'm providing an update on the status of the federal consideration and approval of the California's essential health benefits benchmark plan. On February 9, 2026, the US Department of Health and Human Services issued the notice of benefit and payment parameters, which sets the

standards for health insurance exchanges for the next plan year and impacts ongoing implementation of the Affordable Care Act. The notice as drafted would eliminate a state's ability to revise their benchmark plan to add new benefits to the individual and small group markets.

The notice also states that HHS has paused review of new benchmark plans as they consider revising the regulations related to essential health benefits, consistent within the letter that the Department of Managed Healthcare had received in December 2025.

As such, it is unlikely that cover that California, will be able to adopt a new benchmark plan for the 2027 plan year.

On March 13, 2026, the Department of Managed Healthcare submitted a common letter to HHS regarding this 2027 notice.

Any comment? Okay. I'll start with you. So CMS said they're not gonna be approving anything for the foreseeable for for the foreseeable future. Did I understand that correctly?

Like, don't even come back to us?

Based on the content of the information received from CMS, it is unclear on what timeline. They've basically noted, as my colleague mentioned, they're pausing review at this time as they conduct a comprehensive review of the ACA and its charge.

And they're actively considering future rule making. So I don't know that we have clear guidance on the timeline.

Yeah. Probably no hope there. Okay. Thank you so much. And then, so given the timeline that we've gotten in terms of the loan repayment, it's anticipated $200,000,000 next fiscal year.

We're putting a 100,000,000, a $190,000,000 now for the state subsidies, affordability subsidies. Is the plan to double the amount of people who get it or to increase to the current amount of people?

Governor's budget still proposes a 190,000,000 for next plan year for Covered California for 2027. And I'm not sure. Is that any other comments from Department of Finance?

So we would plan to design a program for 2027 with a $190,000,000 unless the legislature were to increase that, funding amount.

So right now, it's in the budget, the January's budget, that 200,000,000 is gonna be added to the fund for next year?

So the governor's budget is maintaining the 190,000,000, from the healthcare affordability reserve fund, to provide the premium subsidies to eligible cover California enrollees up into 165% of the federal poverty level.

The governor's budget does not include any new significant, you know, proposals and already reflects continuation on previous investments. As the administration is developing the 2026 budget,

we also taking into account a holistic approach as of trying to mitigate the impacts of HR 1.

The state is not in a position to fully backfill the loss of the federal and hence premium subsidies. Sure.

Sure. I appreciate it. But it's in the January budget right now, the 200,000,000 is going back into the loan? Oh, yeah. That is correct.

Okay. How much is in the loan right now?

Yes. So if we were to take two in

cap Sorry. I didn't ask the correct question. How much is in the fund right now?

How much is in the fund right now for the Yeah. The the ending fund balance for the fund.

The healthcare affordability reserve fund.

It is 369,400,000.0.

Okay. Is that without the 200 million that is going in next year or with it? With it. With it. Okay.

So we're gonna get more into the fund but there's not proposed right now to increase to increase the amounts going down to individuals. Correct?

That is correct.

Okay. And did you mention it was 390,000 people that are getting impacted right now? That's right. Okay. I'm just wondering because it's in the fund.

Can you help me understand if there's more money coming in, it's and it's going into the fund. Can we what is stopping us from adding more dollars to the 390,000 people or increasing it to more people?

Given the volatility of the fund and also, the uncertainty of several, federal, policies, we just said at at this at this moment, we cannot really figure out, you know, the out year projections and what the fund, will be holding.