Can California Find Better Ways to Pay for Medi-Cal?

With the demise of the American Health Care Act, massive cuts in federal financing of Medicaid are off the table for now. Yet there is little doubt that efforts to curb federal spending on Medicaid will continue or that California has a lot at stake.

Even before the November election, state policymakers and stakeholders were seeking options to address the shaky financing of California’s Medicaid program, Medi-Cal. Rising health care costs, economic downturns, and threats to federal funding are nothing new, but Medi-Cal’s scale is unprecedented — 14 million people (one in three Californians) are enrolled at an annual cost of $100 billion (the federal government currently covers about 66% of those costs). What can California lawmakers do to ensure the health of this program?

Today the Public Policy Institute of California (PPIC), with support from the California Health Care Foundation (CHCF), released a new report outlining policy options the state could pursue to increase revenue for Medi-Cal. When CHCF decided last year to fund this research, little did we know how urgent the issue of Medi-Cal sustainability would become in 2017.

The PPIC report sets the stage for the deeper debate and analysis that will be needed. It describes how Medi-Cal is funded and explains California’s current budget and tax structure. It examines a range of potential options for raising state revenue to support Medi-Cal, including increasing personal and corporate taxes; rolling back tax deductions for employer-based health coverage, charitable giving, and mortgage interest; raising sales taxes or applying them to services; and imposing “sin taxes” on things like alcohol, tobacco, or snacks.

CHCF has funded Blue Sky Consulting to model the options identified by PPIC. Blue Sky’s analysis, expected this summer, will estimate revenue for some of the options described in the PPIC paper under a variety of scenarios, and examine revenue generated from California residents through Affordable Care Act taxes.

We don’t know what the next threat to Medi-Cal will be or when it will come, but California must prepare for it by putting Medi-Cal financing on a more stable footing.

For more on the future of Medi-Cal, read Moving Medi-Cal Forward on the Path to Delivery System Transformation and hear what expert panelists had to say at this Sacramento briefing.

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