LAO Issues Report on 2020-21 Medi-Cal Budget

The Legislative Analyst’s Office (LAO) recently released its report examining the Governor’s 2020-21 Medi-Cal Budget, which proposes to invest $25.9 billion General Fund ($103.5 billion total funds) in 2020-21 representing a $2.9 billion (12.4 percent) increase over estimated 2019-20 levels. According to the LAO, the increase is largely due to workload budget adjustments, as well as funding to support a series of new policy proposals, including $348 million General Fund ($695 million total funds) for the Medi-Cal Healthier California For All (CalAIM) initiative.

The LAO provides an overview of the full Medi-Cal budget picture and discusses a number of federal actions that could have significant impacts on California’s Medi-Cal program and budget. Among the federal actions examined by the LAO is the managed care organization (MCO) tax proposal which was recently rejected by the U.S. Centers for Medicaid and Medicare Services (CMS). California recently submitted a modified MCO tax proposal for federal consideration which, if approved, would generate a smaller annual General Fund benefit ($1.3 billion to $1.7 billion) than the original proposal (around $2 billion) and have different impacts on MCOs’ tax liability. The LAO indicates federal approval of the modified proposal remains uncertain; however, the Governor’s 2020-21 Budget proposal does not include any receipt of revenues from the MCO tax given the need for federal approval.

Another federal action of consideration is the proposed Medicaid Financial Accountability Rule (MFAR) which would require significant changes to Medi-Cal financing mechanisms, potentially resulting in several billion dollars of higher General Fund costs. The ultimate impact of the proposed regulations is highly uncertain and depends on what provisions are ultimately implemented, if any. The LAO recommends the Legislature to approach proposals to significantly increase ongoing General Fund expenditures in the 2020-21 budget with caution given the potential for a sweeping fiscal impact on Medi-Cal financing under the proposed rule.

The LAO goes on to further examine various proposals made by Governor Newsom such as those to transition Medi-Cal pharmacy benefits to fee-for-service (FFS), expand comprehensive Medi-Cal coverage to income-eligible older adults regardless of immigration status, proposed skilled nursing facility (SNF) rate reforms, and the end of dental managed care. The LAO examines increased oversight of county Medi-Cal administration and recommends the Legislature require the Newsom Administration to provide an update on county performance and efforts to improve performance of county Medi-Cal administration prior to approving the Governor’s proposals related to this area.

The LAO’s Medi-Cal budget report does not included an analysis of the Medi-Cal Healthier California for All (CalAIM) initiative; a separate report on this topic is forthcoming. The full LAO report on the 2020-21 Medi-Cal budget is available here.