California to redirect more than $7B in healthcare funding

California is seeking to divert more than $7 billion in funding from the healthcare sector to address a major funding deficit, according to a revised budget proposal released May 10. 

Gov. Gavin Newsom has proposed reallocating $6.7 billion from Medi-Cal provider rate increases planned for Jan. 1, 2025, to balance the state budget. This funding was generated by the managed care organization tax created last year.

The tax was estimated to provide $19.4 million in federal funding through 2026. In 2024, rates increased to at least 87.5% of Medicare rates for primary care, maternity care and nonspecialty mental health providers. These rates will continue, but no additional workers will be added under the revised plan, according to Politico.

The proposed budget would also cut funding for healthcare workforce initiatives by $854.6 million through 2028. Funding for public health and various behavioral health programs would also be reduced. 

California is facing a budget shortfall of $27.6 billion this year, along with a projected deficit of $28.4 billion next year. Mr. Newsom said the revised plan would close both deficits "while preserving many key services that Californians rely on — including education, housing, health care, and food assistance," in a May 10 news release

View the full budget proposal here.

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