California Faces $1.2 Billion Budget Hit After Trump Administration Rejects Medi-Cal Proposal

The federal government notified Gov. Gavin Newsom’s administration Friday that it is rejecting California’s Medicaid financing proposal, a decision that could cost the state $1.2 billion.

The decision doesn’t affect this year’s budget, and Newsom’s administration plans to continue talks with the federal Centers for Medicare and Medicaid Services over changes to the proposal that might win federal approval, said Department of Finance spokesman H.D. Palmer.

“Even though there’s a denial of our request from the feds in its current form, it doesn’t mean the door is closed on this issue,” Palmer said.

If those efforts aren’t successful, the Finance Department has projected a $1.2 billion hit to the state’s general fund for the budget year starting in July 2021, Palmer said. Newsom’s budget proposal for this year is $222 billion.

The federal government splits with states the cost of health care for people enrolled in Medicaid. In general, the federal government pays 62.5 percent while states pay 37.5 percent, but the percentages vary by state under special arrangements states can make through waivers.

California’s most recent waiver request proposed a variation on a common Medicaid funding mechanism states use to boost their federal Medicaid payments.

Under the arrangement, the state taxes insurers based on how many people are enrolled in their Medicaid plans. It uses that money to offset the state’s share of the Medicaid spending and reimburses the insurers for most of the money, according to a Legislative Analyst’s Office analysis.

The letter from the Centers for Medicare and Medicaid Services says California’s proposed tax structure creates a system in which health plans that participate in Medicaid are taxed differently than those that don’t, which the letter says runs afoul of the agency’s regulations.

 

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