A ballot measure on Medicaid funding is poised to pass. Some say it could do more harm than good.

In California, where roughly 40% of the population relies on the state’s Medicaid program for health insurance, 46 hospitals have closed over the last decade and emergency room wait times have risen to around three hours in recent years. Backers of a ballot measure before voters this fall say they have a potential solution to these health care access shortages.  

Proposition 35 would make an existing state tax on managed care organizations permanent and prevent lawmakers from spending proceeds from the tax on other, unrelated programs. It would also require the state to use some of the tax revenue to increase pay for doctors and other providers under Medi-Cal, the state’s Medicaid program.

If the measure passes, Medi-Cal funding could increase by around $2 billion to $5 billion annually, including federal matching funds, according to the California Legislative Analyst’s Office.

Prop. 35 appears likely to pass. A survey released last month from the Public Policy Institute of California, a nonpartisan think tank, found that 63% of more than 1,000 likely voters would vote “yes.”

The ballot measure is largely backed by the health care industry, which says it would help incentivize more health care providers to join Medi-Cal or take on more Medicaid patients. But opponents of the measure, including patient and voter advocacy groups, say that it would actually end up defunding critical health services and programs.

One of their biggest criticisms is that Prop. 35 would take away funds from some Medi-Cal programs and services. Under Prop. 35, services like outpatient care facilities, behavioral health clinics, reproductive health and family planning resources, and workforce and training programs have top priority for funding, according to the Legislative Analyst’s Office. That means that other areas, such as pay for community health workers, nonemergency medical transportation and continuous Medi-Cal coverage for children under 5 years, could be cut, at least in the short term. 

Adult daycare centers would be another program facing potential cuts, said Ramón Castellblanch, professor emeritus of public health at San Francisco State University and vice president of the California Alliance for Retired Americans, which opposes the ballot measure. For a state where nearly 16% and growing of the population is 65 years or older, scaling back services for older adults will be detrimental to their well-being, he said.

“Some of them won’t get the care they need because there’s nowhere their children can place their parents,” Casetllblanch said. 

In the long term, Prop. 35 could lead California to lose out on a significant chunk of federal funds, said Mayra Alvarez, president of the Children’s Partnership, a health advocacy organization. That’s because the federal government is unhappy with how the state is taxing Medi-Cal insurers.

Currently, California taxes state Medicaid insurers at more than 100 times the rate of private health insurers. Policymakers impose a higher tax rate on Medi-Cal plans because it later gets matched by federal funding to invest back into the state, Alvarez said.

But the federal government has warned California that the wide gap between tax rates paid by public and private organizations needs to be closed. Representatives from the Centers for Medicare & Medicaid Services in a letter to the state wrote that Medi-Cal plans represent half of all insured people but bear “99% of the total tax burden,” which does not align with the intent of the law to redistribute revenue from commercial insurers to Medi-Cal plans. The letter said that the agency “intends to develop and propose new regulatory requirements” to address the issue.

That's where Prop. 35 comes into play, according to Alvarez. The proposition would cap the tax on commercial insurers at a minimal rate. That means if the federal government requires the commercial tax to be more equal to the Medi-Cal tax, the state will be forced to reduce taxes on the Medi-Cal plans.

“That means you’re drastically reducing the amount of funds that can be matched by federal dollars, which is a loss of hundreds of billions of dollars in revenue for the state,” she said. “Long term, we’re actually very fearful for the significant decrease in revenue from the tax that would further undermine the ability to improve [Medi-Cal].”

Across the U.S., 17 other states also impose a tax on managed care organizations, which generally helps raise revenue to support their Medicaid programs. If the federal government changes its regulations as it indicated it would in its letter to California, those states would have to rethink how to fund public health plans. The new funding rules under Prop. 35 would make it harder for California to make changes should the federal rules change.

But supporters of the ballot measure say it would remedy what they see as a long-term problem: Medi-Cal providers aren’t paid enough, and that’s limited Medi-Cal services available for residents, particularly those in rural areas who already face a shortage of health care workers and clinics.

“Patients, especially those who rely on Medi-Cal for insurance, must often wait months before they are able to see a specialist and even when they get an appointment, they have to travel long distances to see a doctor,” the California Medical Association said in a statement earlier this month. “Prop. 35 will fund residency programs across the state to improve access to timely care for all Californians, no matter where they live.”