Editor’s Note
Jacey Cooper was contracted to write this paper before the creation of the Future of Medi-Cal Commission and her subsequent appointment as a commissioner.
Californians living with behavioral health conditions deserve care that is accessible, timely, equitable, and delivered with compassion. Whether that vision can be realized depends on how California finances, governs, and oversees its behavioral health system — and how well funding, accountability, and partnership align to support both access and sustainability.
A System Built for a Different Era
For more than three decades, California’s publicly funded behavioral health financing system — anchored in the 1991 and 2011 realignments — successfully stabilized mental health and substance use disorder services during multiple fiscal downturns and solidified counties as the backbone of the state’s behavioral health safety net.
Before the 1991 realignment, California’s state mental health systems were structurally oriented toward institutional care, particularly state hospitals and institutions for mental disease. The 1991 realignment formally assigned specific program and fiscal responsibilities to counties, designating dedicated revenue — sales tax and vehicle license fees — to fund these responsibilities. This shift created predictable funding for safety-net programs while promoting local flexibility and aligning service delivery with community-level decisionmaking.
The 2011 public safety realignment expanded this framework during another economic downturn and prison-overcrowding crisis, shifting full financial responsibility to counties for the nonfederal share of major Medi-Cal behavioral health programs — Drug Medi-Cal; Early and Periodic Screening, Diagnostic, and Treatment; and Specialty Mental Health — along with responsibilities for social services and for people convicted of lower-level offenses.
Yet the same mechanisms that once ensured stability now constrain the system’s ability to advance equity, integration, and accountability. Over time, state and county policy decisions and fiscal compromises have eroded realignment’s original intent, or at a minimum have not kept up with the evolving public and policy expectations for behavioral health. California’s realignment financing relies on capped, economically sensitive revenue streams allocated to counties, which is fundamentally inconsistent with the needs-based funding structure required to support an entitlement program. The result is a model that works reliably in some regions but inconsistently across the state — where authority is diffuse, accountability is unclear, and fiscal capacity is widely varied.
Counties: Frontline Administrators of Behavioral Health
Counties are the frontline administrators of California’s public behavioral health system. Realignments formalized their authority under the principle that local governments are best positioned to integrate behavioral health with other county-managed services, such as public health, justice, and social services.
However, to achieve these goals, counties rely on braided funding across realignment, BHSA, Medi-Cal, and federal grants to keep services afloat, but this complexity consumes administrative capacity, limits prevention and housing investments, and shifts focus from strategy to fiscal survival. Constitutional fiscal protections have preserved stability while locking in outdated allocations and pushing policy and financial risk downward, making innovation optional and uneven. The result is a county-centric system that can innovate where local capacity is strong but produces widening geographic inequities and blurred accountability between payer, regulator, and provider.
Further, California’s decision to carve specialty behavioral health out of Medi-Cal managed care entrenched a county-based delivery and financing structure that fragmented accountability, separated behavioral health financing, and continues to shape today’s siloed and uneven system.
To address this fragmentation and meet public and policy behavioral health expectations, California has pushed a series of behavioral health system reforms over the last decade, each initiative building upon rather than replacing existing structures. Such reforms include the Affordable Care Act, CalAIM (California Advancing and Improving Medi-Cal), and 2024’s Proposition 1, which transformed the Mental Health Services Act to the Behavioral Health Services Act.
California’s behavioral health system is being asked to do more than ever. It must respond to a youth mental health crisis, address homelessness and the overdose epidemic, expand crisis response and housing coordination, and align with CalAIM’s integrated-care goals — all within a financing structure designed for 1991’s realities.
Potential Solutions
California has several viable pathways to reform. Each seeks to simplify funding, strengthen accountability, and promote fiscal equity while balancing local autonomy with statewide oversight. More than one solution can be implemented:
- Equity-weighted growth allocation reset. Modernize growth allocation methodology using indicators such as population, prevalence, service utilization, and rural access.
- Performance- and outcome-based allocation. Distribute incremental funds through performance-based allocations tied to shared statewide metrics such as access, timeliness, engagement, and recovery outcomes.
- County behavioral health plan modernization. Fund counties to operate more like managed care plans, with dedicated administrative support, technical assistance, and clear expectations for core managed care functions.
- Shared services for small counties. Establish regional hubs for claims processing, data analytics, IT infrastructure, and quality assurance.
- Regional public authorities. Create joint powers entities to pool resources and centralize administrative functions with unified governance.
- Joint state-county governance model. Establish a State-County Behavioral Health Governance Council for coordinated financing, performance oversight, and shared accountability.
- MCP-managed behavioral health model. Transition to Medi-Cal managed care plan administration under unified rules, with counties continuing as core specialty providers through MCP contracts.
The Path Forward
California built stability for systems, and over time normalized the impact that had on people. Reform is urgent — not simply to adjust funding levels, but to align fiscal policy, governance, and accountability so California’s behavioral health system can function as a true partner in health, housing, and community well-being.
Sustained integration will require aligned payment models and interoperable data that allow counties and managed care plans to comanage members rather than operate in silos. The goal is not to assign blame but to build a system that is equitable, integrated, and accountable — one capable of meeting the needs of Californians today and for the next generation.
