Ballot Measure on New Medi-Cal Spending Has Broad Support, But Opponents Flag Pitfalls

The proponents of Proposition 35, a November ballot initiative that would create a dedicated stream of funding to provide health care for California’s low-income residents, have assembled an impressive coalition: doctors, hospitals, community clinics, dentists, ambulance companies, several county governments, numerous advocacy groups, big business, and both major political parties.

The Yes on Prop 35 campaign has raised over $48 million as of Sept. 9, according to campaign filings with the secretary of state. The measure would use money from a tax on managed-care health plans mainly to hike the pay of physicians, hospitals, community clinics, and other providers in Medi-Cal, the state’s version of Medicaid.

For many months, there was no organized opposition. But shortly after Labor Day, a small group of community advocates, including the League of Women Voters of California, California Pan-Ethnic Health Network, and The Children’s Partnership, announced they were united against it.

“We do not have the deep pockets that the proponents of the initiative do,” said Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Network. No fundraising has been recorded from opposition groups thus far.

Gov. Gavin Newsom hasn’t taken a public stance, but he has warned that the proposal to lock in how proceeds from the managed-care tax are used would hamstring his administration’s ability to address the state’s yawning budget gap.

The people represented by some of the opposition groups include Medi-Cal patients who are among the state’s most vulnerable — children, seniors, people with disabilities, and the chronically ill — as well as some workers who provide ancillary care to them.

The opponents say that if Proposition 35 passes, the patients, workers, and programs they care about could lose millions of dollars included for them in this year’s state budget. That’s because the ballot measure would supersede the budget, and it leaves them out of the health tax proceeds.

The budget currently provides tens of millions of dollars a year to raise the pay of community health workers, nonemergency medical transport drivers, and private-duty nurses, among other personnel. It also funds the cost of a new program, scheduled to start Jan. 1, that allows children through age 4 to stay on Medi-Cal without requiring their families to prove eligibility every year. Child health advocates say that will help avoid potentially harmful gaps in coverage.

Mayra Alvarez, president of The Children’s Partnership, estimates the program would bring coverage stability to about 1.2 million California kids. But funding for it will be at risk if Proposition 35 passes, she warns.

It’s not that the money for that program, or the pay increases for ancillary health care workers, would necessarily go away forever. But advocates would have to fight for it in subsequent budget rounds.

Dustin Corcoran, CEO of the California Medical Association, told me that in addition to the Medi-Cal pay hikes, and some funding for medical education and extra residency slots, the initiative would provide $2 billion a year in 2025 and 2026 to the state’s general fund, “which the legislature can appropriate as they see fit, which vastly exceeds the cost of the programs you mentioned.” CMA and Planned Parenthood Affiliates of California are leading the charge on Proposition 35.

Corcoran’s comments suggest that the groups worried about losing funding if Proposition 35 passes should be able to get it restored in future budgets. Given the current fiscal crisis, however, not everyone is buying it.

“We’re short tens of billions of dollars,” says Ramon Castellblanch, vice president of the California Alliance for Retired Americans, which opposes the measure. “For these people to say, ‘Wait, the general fund is going to cover it’ — is that called gaslighting?”

Proposition 35 proponents say that children, seniors, and disabled or chronically ill people also use doctors, hospitals, and community clinics, for which the measure does provide extra money.

They argue the initiative will go a long way toward addressing Medi-Cal’s historically low pay rates, enticing more providers to participate in the program and enabling those who already do to take more Medi-Cal patients.

“This will be the most significant investment in the Medi-Cal system since the Affordable Care Act,” Corcoran says. “I think it holds great promise for improved access to care, improved quality of care, shorter wait times for all Californians in our ERs, and elimination of health care deserts that are popping up in too many parts of our state.”

Another concern raised by Proposition 35 skeptics is that a long-threatened change in federal rules governing how states collect managed-care taxes to fund Medicaid could torpedo the plans of California — and some of the other 18 states with such a tax.

Proposition 35 sets specific dollar amounts through 2026, which are based on the managed-care tax approved by the federal government last year. But the tax, which California has had in some form since 2009, must be renewed and federally approved every three years. That means that the tax requires another federal approval starting in 2027, the year the ballot measure would make funding permanent.

California’s managed-care tax comes from a levy imposed on health plans, based on monthly numbers of both Medi-Cal and commercial insurance enrollees. The money raised is matched by the federal government, doubling the spending power.

Federal rules require that the health plans be reimbursed for the tax they pay on their Medi-Cal membership. Since the Medi-Cal rate is around 100 times as much as the rate on commercial membership, 99% of the revenue from the tax is on the Medi-Cal side, thus holding many of the health plans almost entirely harmless and minimizing any impact on premiums.

But the federal government has been warning California for years, most recently in a letter it sent in late 2023 accompanying its approval of the managed-care tax, that it will require more balance between the commercial and Medi-Cal levies. Were it to change the rules in that direction, it could cause a major headache in California for a couple of reasons.

First, as proponents of Proposition 35 readily acknowledge, there is no political appetite for an increase in the amount of tax raised on commercial health plan memberships. That’s because it would likely lead to a rebellion by health plans or a jump in premiums that would anger employers, privately insured individuals, and plenty of other people. In that case, the only way to comply would be to lower the tax rate on Medi-Cal enrollment, which would significantly reduce revenue.

Second, though the ballot measure contains flexibility for small changes, it requires a three-fourths majority vote in the legislature for any major changes. That would be a tall order.

“Say the federal administration comes back and says, ‘You can’t do this anymore,’ which seems likely,” says Savage-Sangwan, who is also a spokesperson for the opposing coalition. “We’re going to be stuck with a whole lot less money.”

So far, however, the feds have not followed through on repeated warnings, and Proposition 35 proponents seem to be betting the threat of changes will prove nothing more than bluster.

We’ll see.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.

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KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.