California’s 2023-24 budget awards $156.6 billion to Department of Health Care Services – State of Reform

The state of California recently adopted its $310 billion state budget for 2023-24, and despite a $31.5 billion deficit, leaders have prioritized investment in the health sector. Major healthcare investments include CalAIM and a renewed managed care organization (MCO) tax.

The budget includes a total of $156.6 billion to support the Department of Health Care Services (DHCS). Of this total amount, $1.3 billion will be allocated to fund State operations and $155.3 billion will support local assistance, such as funding program costs. DHCS will receive an increase of $11.8 billion from last year’s budget funding of $144.8 billion.

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The budget renews the Set MCO, which will allow California to receive matching federal funds to support the Medi-Cal program. The MCO tax, pending federal approval, is estimated to bring about $19.4 billion in net state benefits through 2026, and in that net benefit period, approximately $8.3 billion will go to existing medical expenses. The remaining $11.1 billion will go to new Medi-Cal investments.

Under the MCO tax, rates for primary care, including nurses and physician assistants, maternity care, including OB/GYN and doula, and non-specialist mental health services will increase to at least 87.5 percent of Medicare effective January 1, 2024. The tax is three times higher than in previous years and will focus on increasing other areas of the Medi-Cal program, rather than offsetting medical spending.

Donaldo Hernandez, MD, president of the California Medical Association, recently praised the renewal of the MCO tax.

Passing this bill and agreeing to invest new revenue in the healthcare system will equip California to meet our future needs by training hundreds of additional physicians each year and ensuring that emergency departments are able to stay open in times of crisis. With these MCO tax dollars, our state will be able to take significant steps toward fulfilling Medi-Cals’ promise to provide access to quality, timely care for our most vulnerable patients.


California will also require Medi-Cal managed care plans to pay providers, at a minimum, base rates for the service. Proceeds from the MCO fees, combined with funding from the Department of Health Information and Access, will release $150 million for the Distressed Hospital Loan Program and $50 million for the Small and Rural Hospital Relief Program.

The budget also provides $75 million for fiscal year (FY) 2023-24 and additional funds in the coming years for undergraduate medical education through the University of California, which issued a statement regarding the June budget.

The funding provided will allow the university to continue to expand opportunities for more California students to attend the University of California while ensuring that our campuses can make the necessary investments to support that growth. In addition to hiring more faculty and academic support staff, this stable funding provides locations with increased resources for long-term projects that expand student resources on campus.

University of California

While a lot of excitement surrounds the MCO tax renewal, the budget also creates a number of changes to the CalAIM program. DHCS plans to file a 1115 demonstration waiver later this fall to expand behavioral health services for Medi-Cal members living with serious mental illness or severe emotional disorder, known as the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) demonstration.

While this demonstration has not yet been presented or approved by the Centers for Medicare and Medicaid Services, California hopes to implement BH-CONNECT by January 1, 2025. Over five years, it is estimated to cost $6.1 billion, including $306.2 million from the general fund.

If approved, BH-CONNECT would make targeted long- and short-term investments in a diverse behavioral health workforce, which would cost $480 million annually over the five-year demonstration period.

As part of the BH-CONNECT demonstration, the budget includes transient rental services and calls for an amendment to the CalAIM waiver to allow for the inclusion of transient rental services as a community support.

The bridging rent services would allow up to six months of rent or temporary housing to eligible individuals who are homeless or at risk of becoming homeless and who are moving out of institutional care levels, correctional facilities or the foster care system, who are also at risk of incurring other state Medicaid plan services, such as hospital stays and emergency room visits. Tax impacts for this service will begin during the 2024-25 fiscal year.

California became the first state in the nation to allow individuals involved in justice to receive Medi-Cal coverage. Those who have experienced incarceration experience higher rates of physical and behavioral health diagnoses, as well as higher rates of overdose, trauma, violence and suicide than individuals who have never been incarcerated.

Earlier this calendar year, DHCS implemented pre-release Medi-Cal eligibility and enrollment processes up to 90 days prior to release from state juvenile and adult prisons, county jails, and juvenile correctional facilities. The budget includes $9.9 million, including $3.8 million from the general fund, for fiscal year 2023-24 for implementation of the Justice Initiative and Pre-release Services, and an additional $225 million is expected to be provided through the Provide Access and Transform Health (PATH) initiative.

The justice initiative funding will, in part, support collaboration between correctional facilities and county social services departments on planning and implementing Medi-Cal enrollment processes prior to release.

PATH will also receive an additional $40 million from the general fund to assist providers in the implementation and development of CalAIMs community support services and advanced care management in clinics.

Another initiative within the budget is expanding medical services, including home support services, to undocumented people who reside in the state. Effective January 1, 2024, all income-eligible adults between the ages of 26 and 49, regardless of immigration status, can apply to receive the full range of Medi-Cal benefits and services.

The budget has set aside $1.4 billion, including $1.2 billion from the general fund, for the 2023-24 fiscal year, and $3.4 billion, including $3.1 billion from the general fund, upon full implementation.

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