The 2023-24 California Spending Plan

Health

Overview

Spending on Health Programs Notably Increases on Net Under Budget Package. As Figure 1 shows, the spending plan provides $43 billion General Fund for health departments in 2023-24, reflecting an increase of $5.3 billion (14.2 percent) over the revised 2022-23 level. Of this spending level, the majority (87 percent) is for Medi-Cal, California’s Medicaid program. Because Medi-Cal comprises such a substantial share of the state’s health budget, it is the major driver in this year’s growth in health General Fund spending. General Fund health-related spending outside of Medi-Cal declines on net in the budget year, partially offsetting the growth in Medi-Cal spending.

Many Spending Changes Reflect Technical Budget Adjustments. Much of the overall growth in General Fund Medi-Cal spending reflects technical budget adjustments. For example, the spending plan implements previously enacted expansions of comprehensive Medi-Cal coverage to undocumented individuals and reflects an increase to the state share of cost as a result of the unwinding of federal COVID-19 policies. Outside of Medi-Cal, the net decline in spending largely reflects the removal of one-time funding from 2022-23.

Spending Plan Includes Handful of New Augmentations and Initiatives. This year’s spending plan includes a handful of new program augmentations and initiatives in the health area, comprising $633 million (over 10 percent) of the net growth in General Fund spending in health programs in 2023-24. These include cash flow support for counties transitioning to a new payment arrangement for behavioral health and funding for new health innovations and pandemic response efforts. Though enacted in this year’s budget package, spending on some new initiatives would begin or notably ramp up in future years. We summarize all of the major new actions, including new augmentations, in 2023-24 in the Appendix at the end of this post.

Spending Plan Also Enacts Budget Solutions. As our recent publication The 2023-24 Budget: Overview of the Spending Plan notes, this year’s spending plan enacts a number of reductions, delays, and other solutions intended to help balance General Fund revenues and expenditures. A number of these solutions are in the health area. As Figure 2 shows, health-related budget solutions total $5.7 billion in 2023-24. The largest of these solutions is the adoption of a new managed care organization (MCO) tax, with a portion of the revenues offsetting General Fund spending in Medi-Cal. The budget also offsets $3.4 billion of General Fund spending with a few other special funds, such as the Mental Health Services Fund. In addition, the budget enacts several delays to existing initiatives, loans from health-related special funds, and reductions to certain initiatives.

Medi-Cal

This section describes the major actions and adjustments in Medi-Cal in the budget package. It first provides an overview of Medi-Cal’s budget. It then summarizes major actions and adjustments related to federal COVID-19 policies, the MCO tax, services to undocumented beneficiaries, and other areas.

Overview

Medi-Cal Spending From All Fund Sources Grows in 2023-24. As Figure 3 shows, overall Medi-Cal spending across all fund sources is estimated to be $135 billion in 2022-23, slightly down from the amount assumed in last year’s budget. This overall downward revision is the net result of a $5.5 billion (15.1 percent) downward revision in General Fund spending, partially offset by higher levels of federal and other nonfederal spending. From this revised level, Medi-Cal spending is projected to grow by $16.5 billion (12.2 percent) to $152 billion in 2023-24. This increase is driven by higher levels of General Fund and other nonfederal spending, with federal funding projected to decline slightly compared to the revised 2022-23 level. Below, we describe the major drivers of these changes.

Current-Year General Fund Spending Is Down Primarily Due to Technical Adjustment. Most of the downward revision in General Fund spending in 2022-23 reflects technical budget adjustments rather than new budget actions. For example, the budget assumes a substantial portion of one-time funding provided in the 2021-22 and 2022-23 budgets will instead be spent in 2023-24. In addition, the budget reflects recent congressional actions around federal COVID-19 policies, also on net resulting in lower-than-assumed General Fund spending in 2022-23. A handful of much smaller budget actions also impact spending in 2022-23, such as delayed rounds of funding for initiatives to help address the state’s budget problem (described earlier).

Many Factors Result in General Fund Spending Growth in the Budget Year. Many of the factors reducing Medi-Cal General Fund spending in 2022-23 in turn increase spending in 2023-24. For example, the assumed shift in the timing of one-time spending from 2022-23 to 2023-24 is a major component of the year-over-year growth. The recent congressional actions around federal COVID-19 policies also on net increase General Fund spending in 2023-24. Other major upward spending adjustments include projected rate increases for managed care plans and the implementation of previously enacted eligibility expansions for undocumented individuals. These spending increases are partially offset by several major changes reducing General Fund costs—most notably, an offset in General Fund spending from the new MCO tax package. We describe several of these upward and downward adjustments further in the following sections.

A Handful of Special Funds Drive the Notable Budget-Year Increase in Other Nonfederal Funds. Other nonfederal Medi-Cal spending grows in 2023-24 primarily because of the adoption of a renewed and much larger MCO tax. Beyond the new MCO tax, other notable increases result from the creation of a new special fund related to behavioral health payment reform, spending growth in the Hospital Quality Assurance Fee program, projected increases in Medi-Cal drug rebates, and a one-time use of the Mental Health Services Fund to partially support certain behavioral health initiatives.

Unwinding of Federal COVID-19-Related Policies

Reflects Unwinding of PHE-Related Adjustments. During the federal public health emergency (PHE), various changes were made to the Medi-Cal program. Notably, the federal government increased its share of cost for Medi-Cal on the condition that states comply with several rules, including the continuous coverage requirement, which prohibits states from terminating eligibility for existing beneficiaries except in limited circumstances. In late 2022, Congress enacted legislation effectively triggering the ramp down of these policies over a specified time period. Below, we describe the time line to unwind each policy.

• Enhanced Federal Funding Ramps Down Beginning April 2023. The enhanced federal funding is ramping down over the course of calendar year 2023. Beginning in April 2023, the enhanced federal share of cost for most services dropped from the additional 6.2 percentage points to 5 percentage points, then to 2.5 percentage points by July 2023, 1.5 percentage points by October 2023, and will be fully eliminated by January 2024. After this point, the federal share of Medi-Cal costs will return to the levels provided before the PHE.

• Caseload Decreases Due to End of Continuous Coverage Requirement. The continuous coverage requirement expired at the end of March 2023, triggering the requirement that counties resume processing eligibility redeterminations on a monthly basis. As a result, the Medi-Cal caseload is expected to decline significantly. The first individuals determined to be no longer eligible for Medi-Cal lost Medi-Cal coverage on July 1, 2023. Counties are expected to complete all eligibility redeterminations by May 31, 2024. Thereafter, annual eligibility redeterminations will be staggered throughout the year, similar to practices before the PHE.

MCO Tax Package

Renews MCO Tax, With Higher Tax Rates. The MCO tax is a tax on health insurance enrollment, with different rates applied to enrollment in the Medi-Cal program and the commercial sector. While the tax is charged to health insurance plans, most of the burden of the cost of paying the tax falls on the federal government. This is because the tax is designed to draw down more federal Medicaid funds, enabling the state to generate a large fiscal benefit while using the Medi-Cal program to cover most of the cost of the tax to health insurance plans. The most recent version of the MCO tax extended from January 2020 through December 2022. Trailer bill legislation (Chapter 13 of 2023 [AB 119, Committee on Budget]) adopts a new version of the MCO tax beginning in April 2023 and extends it through December 2026. As Figure 4 shows, the new MCO tax charges much higher rates on Medi-Cal enrollment relative to the most recent version.

Yields Large Fiscal Benefit to the State. Because the new version of MCO tax charges much higher rates, its fiscal benefit to the state also is much larger. As Figure 5 shows, the new tax generates total annual revenue of around $8 billion—more than three times the annual revenue of the most recent tax. The cost of the tax to health insurance plans associated with Medi-Cal enrollment will be covered by the Medi-Cal program, using a mix of MCO tax proceeds and federal Medicaid funds. After factoring the portion of MCO tax proceeds redirected back to the health insurance plans, the new tax yields an annual net fiscal benefit to the state ranging between $4.4 billion to $5.3 billion.

Uses Net Fiscal Benefit for Varied Purposes. Generally, the state in past years used the MCO tax solely to offset General Fund spending on Medi-Cal’s existing budget. The new version of the MCO tax, by contrast, includes an expenditure plan for the funds with mixed uses. Specifically, a portion of the net fiscal benefit will offset General Fund spending in Medi-Cal, and the remaining portion of funds will support certain health-related augmentations. To accomplish this dual purpose, the trailer bill legislation establishes two new special funds. All proceeds first will be deposited into the Managed Care Enrollment Fund. Funds specifically for augmentations then will be transferred to a new reserve account called the Medi-Cal Provider Payment Reserve Fund. Health-related trailer bill legislation (Chapter 42 of 2023 [AB 118, Committee on Budget]) further elaborates on the specific augmentations (described below).

Commits Portion of Funds for Specific Augmentations and Defers Action on Remainder to Next Year’s Budget. Of the amounts transferred to the Medi-Cal Provider Payment Reserve Fund, Chapter 42 designates four specific augmentations: (1) one-time support in 2023-24 for the Distressed State Hospital Program at the Department of Health Care Access and Information (HCAI) ($150 million); (2) one-time support in 2023-24 for the Small and Rural Hospital Loan Program at HCAI ($50 million); (3) beginning in January 2024, increases to bring Medi-Cal rates for primary care, maternity care, and non-specialty mental health services to 87.5 percent of what Medicare pays (estimated annual state cost of $241 million); and (4) support for graduate medical education programs at the University of California ($75 million each calendar year). The legislation directs the administration to submit a proposal for the remaining reserve funds (as projected for the term of the tax) as part of the 2024-25 budget. Chapter 42 directs the administration to propose augmentations in Medi-Cal that advance access, quality, and equity, as well as promote provider participation. The administration is authorized to consider several specific areas within Medi-Cal for augmentation, such as hospital and family planning services.

Conditions Tax on Receiving Federal Approval. The state must receive approval from the federal government to use the MCO tax to draw down additional federal Medicaid funding. Because this federal funding arrangement is a critical component of the MCO tax package, Chapter 13 conditions authorization of the MCO tax on the state receiving federal approval. If the federal government does not initially approve the MCO tax, the trailer bill legislation grants the administration authority to adjust the structure of the tax as needed to meet federal rules and to resubmit the tax for federal approval.

Spending Increases Related to Services to Undocumented Beneficiaries

Assumes Increased Costs for Medi-Cal Expansions to Undocumented Residents. Over the last several years, and in a number of steps, the Legislature has expanded comprehensive Medi-Cal coverage to all income-eligible undocumented residents, with the most recent expansion for undocumented residents aged 26 through 49 scheduled to go into effect in January 2024. As only limited Medi-Cal services provided to undocumented residents are eligible for federal funding, the 2023-24 budget reflects significant General Fund increases related to the provision of comprehensive services to this population. Specifically, the 2023-24 budget includes (1) $4.3 billion General Fund for federal repayments and deferrals to address claims for federal funding that potentially were made in error, (2) $2.3 billion General Fund for technical adjustments intended to ensure federal funds are not used to provide services for undocumented residents inappropriately by replacing federal funds budgeted in the fee-for-service and managed care base with General Fund where appropriate, and (3) $1.2 billion General Fund for the scheduled expansion of eligibility for comprehensive Medi-Cal services to undocumented residents between the ages of 26 and 49. These amounts are considerably higher than estimated in past budgets. The increased costs are largely due to a federal corrective action plan, under which the state has developed a revised methodology to determine per-enrollee costs for this population and the appropriate amount of federal funding to claim.

Other Key Actions

Assumes Federal Approval of New Reproductive Health Waiver. The budget includes a plan for the Department of Health Care Services (DHCS) to seek federal approval for a new three-year demonstration waiver to support access and provider capacity for services related to family planning for existing enrollees and Medicaid-eligible nonresidents beginning in 2024. To support services provided through the demonstration, the Governor proposes $15 million one-time General Fund ($200 million total funds) in 2024-25.

Adopts New Transitional Rent Benefit. The spending plan assumes funding for a new managed care community support benefit under the California Advancing and Innovating Medi-Cal (CalAIM) initiative. The new benefit will provide up to six months of rent or temporary housing for certain individuals experiencing homelessness or at risk of homelessness and transitioning out of institutional levels of care, a correctional facility, or the foster care system. The new benefit requires amendment of the state’s existing CalAIM waiver and approval from the federal government. The spending plan provides $6 million General Fund ($18 million total funds) in 2025-26 to support the new benefit, with the amount eventually ramping up to $41 million ongoing General Fund ($117 million total funds) at full implementation.

Expands Support for CalAIM Provider Access and Transforming Health (PATH). CalAIM PATH is a multiyear initiative that provides funding for capacity building to a number of programs established by the CalAIM waiver, in particular, Enhanced Care Management, Community Supports, and Justice Involved services. The spending plan provides an additional $40 million one-time General Fund in 2023-24 for grants to certain clinics to build and expand infrastructure for Enhanced Care Management and Community Supports services.

Expands Support for Health Enrollment Navigators. The spending plan provides $10 million one-time General Fund ($20 million total funds) to community health centers to provide health navigation services. The health enrollment navigators project was initially established in 2019 on a three-year, limited-term basis to provide counties and community-based organizations with funding to provide potentially eligible Medi-Cal populations with outreach and assistance applying for and maintaining enrollment in Medi-Cal.

Delays Elimination of End-of-Year Provider Payment Processing Hold. As a budget solution in 2006-07, the state implemented a hold in processing fee-for-service provider payments for the last two weeks of the fiscal year—a practice that remains in effect today. Because Medi-Cal is budgeted based on when cash payments are made, the hold generated one-time savings in 2006-07 by shifting payments into the next fiscal year. The 2022-23 Budget Act included one-time General Fund support to eliminate the delay beginning in 2022-23. The spending plan shifts the elimination of the delay in provider payment processing until 2024-25, which frees up $378 million one-time General Fund in 2022-23.

Sweeps Medi-Cal Drug Rebate Fund Reserve. As part of the 2019-20 budget package, the state established the Medi-Cal Drug Rebate Fund to collect a portion of federal and state drug rebate revenues in Medi-Cal. Previously, drug rebates were not collected in a special fund but rather directly offset General Fund spending on drug costs. The fund is intended to smooth the impact of drug rebates, which can vary notably year to year, on General Fund spending in Medi-Cal. The budget package sweeps this fund account’s estimated reserve in 2023-24, resulting in a one-time offset to General Fund spending of $222 million.

Restores Recently Expired Pediatric Subacute Rate Increase. Pediatric subacute facilities benefitted from a temporary 10 percent rate increase for long-term care facilities that was provided during the PHE. The temporary rate increase ended May 11, 2023. The spending plan includes $836,000 General Fund ($1.7 million total funds) to restore this rate increase for pediatric subacute facilities effective January 1, 2024.

Expands Whole Child Model to Additional Counties. The Whole Child Model, enacted in 2016, integrates the California Children’s Services program into Medi-Cal managed care. Prior to this year’s budget package, Whole Child Model was authorized in 21 counties—nearly all counties with only one public managed care health plan serving most Medi-Cal beneficiaries. As part of a recent state effort to renew Medi-Cal managed care arrangements, 15 additional counties will transition to having only one public managed care health plan beginning in January 2024. Reflecting this change, health-related trailer bill legislation (Chapter 42 of 2023 [AB 118, Committee on Budget]) expands the Whole Child Model to 12 of these counties, with the change scheduled to begin January 2025. The remaining three counties (Alameda, Contra Costa, and Imperial), as well as all other counties, will continue to administer the California Children’s Services program on a fee-for-service basis outside of Medi-Cal managed care. The legislation also enacts certain other changes to enhance oversight over the Whole Child Model. The budget treats this policy change as fiscally neutral to the Medi-Cal program.

Behavioral Health

Funding for the Proposed Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Medi-Cal Demonstration Waiver. The spending plan includes about $6 million—$216,000 General Fund, $4 million federal funds, and $2 million in county and other funds—for DHCS in 2023-24 to begin implementing the proposed BH-CONNECT Medi-Cal demonstration waiver. The waiver—which is contingent on federal approval—is for a five-year demonstration that will, if approved, allow the state to receive federal matching funds for short-term stays in institutions for mental disease. (Federal reimbursement is contingent on the state meeting a series of milestones, including providing increased access to a full continuum of behavioral health care.) Estimated spending under the waiver totals about $6 billion in DHCS—$185 million General Fund, $4 billion federal funds, and $2 billion in county and other funds—from 2023-24 through 2027-28. Under the waiver, there also is funding for the Department of Social Services (DSS) that we detail in our Human Services Spending Plan.

Includes $250 Million to Facilitate CalAIM Behavioral Health Finance Reform. The spending plan includes $250 million one-time General Fund to support the CalAIM Behavioral Health Payment Reform initiative. The appropriation funds a portion of the nonfederal share of behavioral services provided by counties as they transition to a new payment process to receive federal Medicaid reimbursements. Additionally, the budget package creates a new special fund, the Medi-Cal County Behavioral Health Fund, to support counties’ transition to the new payment process.

Provides Funding for Implementation of the Community Assistance, Recovery, and Empowerment (CARE) Act. The CARE Act, passed last year, creates a new judicial process to compel individuals with severe mental illness to engage with various behavioral health services. (We describe the “CARE Court” process in more detail in the “Behavioral Health” section of the 2022-23 Health Spending Plan.) The spending plan includes $73 million in 2023-24, $127 million in 2024-25, and $158 million in 2025-26 and ongoing from the General Fund to DHCS to fund the implementation of the CARE Act. The funding will support implementation activities of the first cohort of counties, including notice requirements, clinical assessments, court time of county behavioral health professionals, and outreach and engagement. The increase following 2023-24 reflects the second cohort of counties beginning implementation of the CARE Act in December 2024. Of the amount appropriated in 2023-24, $15 million will be for Los Angeles County to begin early implementation of the CARE Act in December 2023 whereas it was originally in scheduled to begin implementation with the second cohort of counties. Additionally, the spending plan includes funding for the courts to implement the CARE Act, which we describe in our Judiciary and Criminal Justice Spending Plan.

Includes Roughly $125 Million in 2023-24 for Opioid-Related Initiatives. The spending plan includes $75 million in 2023-24, $36 million in 2024-25, and $24 million in 2026-27 from the Opioid Settlements Fund for DHCS to expand the Naloxone Distribution Project, which distributes naloxone to first responders, law enforcement, community-based organizations, and county agencies. The budget package includes provisional language that authorizes the Department of Finance to augment the funding by up to $15 million if sufficient resources are available in the Opioid Settlement Fund. In addition, the spending plan includes $30 million in 2023-24 for HCAI to support the development or procurement of a low-cost, generic version of a naloxone nasal product. The spending plan also includes $15 million each year from 2023-24 through 2026-27 for the Overdose Prevention and Harm Reduction Initiative at the California Department of Public Health (CDPH). The spending plan provides CDPH $7.5 million to administer grants to reduce fentanyl overdoses and support innovative programs to distribute fentanyl testing strips.

Provides Funding to Implement the 988 Suicide and Crisis Lifeline. The spending plan includes $9.2 million—$6.3 million 988 Suicide and Behavioral Health Crisis Services Fund, $2.2 million Managed Care Fund, and $800,000 federal funds—and 17.5 positions to administer the provisions of Chapter 747 of 2022 (AB 988, Bauer-Kahan), which implemented the 988 suicide and crisis lifeline in California. Funding is spread across the California Health and Human Services Agency (CalHHS), DHCS, and the Department of Managed Health Care (DMHC), whereas positions are dedicated to DHCS (10 positions) and DMHC (7.5 positions). In addition to the state operations support, the spending plan includes $19 million one-time 988 Suicide and Behavioral Health Crisis Services Fund to support operations at 988 centers. The budget package includes statutory changes that conforms state law with federal requirements, aligns coverage of 988 services between commercial and Medi-Cal plans, and makes various other changes.

Funds Behavioral Health Modernization Efforts. The spending plan includes $40 million ($20 million Mental Health Services Fund [MHSF]) for DHCS to conduct early work associated with the Governor’s proposed major changes to the Mental Health Services Act. (These changes are subject to voter approval in the March 2024 election.) The funding will be used for a combination of state staff and contract resources to update policies and regulations, issue guidance, and other implementation activities.

Extends Contingency Management Pilot. As a part of the 2021-22 budget package, the state was required to submit a package of home- and community-based services (HCBS) enhancements—known as the HCBS spending plan—to the federal government as a condition of drawing down additional federal funds resulting from a temporary 10 percentage point increase to the federal Medicaid match rate. The HCBS spending plan included $59 million for a pilot to add contingency management as an optional service to the Drug Medi-Cal Organized Delivery Service waiver. Contingency management treats stimulant use disorder by providing individuals with small financial incentives combined with behavioral health treatment. The 2023-24 budget includes 11 permanent positions and a total of about $13 million ($6 million General Fund) across five fiscal years for DHCS administration of the extended pilot.

Actions to Address the Budget Shortfall. The budget package includes several actions in the behavioral health area to address the General Fund budget problem.

• Behavioral Health Bridge Housing (BHBH) Delay and Fund Swap. The budget delays $235 million in BHBH funding previously budgeted in 2023-24 to 2024-25. In addition, the budget replaces $265 million of General Fund for BHBH in 2023-24 with MHSF.

• Delays $481 million in Behavioral Health Continuum Infrastructure Program (BHCIP). The budget delays the sixth round of BHCIP grant funding previously budgeted for 2022-23. Half of the delayed funds would be provided in 2024-25 with the remaining amount provided in 2025-26.

• CalHOPE Fund Shift. The budget shifts $50.5 million in support of the CalHOPE program from the General Fund to the MHSF.

Department of State Hospitals

Overview. Under the spending plan, General Fund spending for the Department of State Hospitals (DSH) will be $3.3 billion in 2023-24, an increase of $443 million, or about 16 percent, from the revised 2022-23 expenditure estimate. This net increase generally reflects reappropriations to address the Incompetent to Stand Trial (IST) waitlist, continued COVID-19 response funding, and the continued planning of the electronic health records project.

Reappropriates IST Solutions Funding. Individuals who have been tried with a felony but are deemed by a mental health professional to be IST are referred to DSH for treatment, with the goal of restoring them to competency in order to proceed with their felony trials. In 2022-23, the Legislature appropriated multiyear funding to DSH to implement solutions addressing the state’s growing felony IST waitlist. The spending plan includes $207 million in reappropriations from the 2022-23 IST solutions package and community inpatient infrastructure projects that were appropriated in 2021-22. The reappropriations are meant to reflect updated implementation time lines and extend the availability of funding.

Includes Funding for Continued COVID-19 Response. The spending plan includes $41 million one-time General Fund to fund DSH’s COVID-19 response plan. The department has a number of continued infection control measures that extend beyond the end of the declared PHE, including vaccinations, masking, testing, and isolation.

Provides Funding for Electronic Health Records Project. The spending plan includes $21 million General Fund in 2023-24 and $22 million General Fund in 2024-25 and ongoing for project planning and procurement and activities needed for the transition of the project into implementation of the Continuum Electronic Health Record System.

California Department of Public Health

Overview. Under the spending plan, the total funding for CDPH will be $5.5 billion in 2023-24, a decrease of $1.5 billion, or about 22 percent, from the revised 2022-23 expenditure estimate. This decrease generally reflects the end of funding from the California Emergency Relief Fund for direct COVID-19 response expenditures.

Includes Funding for Continued COVID-19 Response. The spending plan includes $51 million one-time General Fund to fund CDPH’s COVID-19 response initiative. The department will use the funding for testing, support for the department’s COVID-19 website and public information campaign, and incentives for vaccinations for children.

Funds Disease Data Systems Maintenance. The spending plan includes $74 million General Fund for the maintenance and operations of infectious disease data systems established during the COVID-19 pandemic. The $74 million one-time expenditure is to maintain the data systems while the department engages in the procurement of an ongoing maintenance contract.

Maintains Funding for Public Health Infrastructure Investment. In the 2022-23 Budget Act, CDPH received $100 million General Fund ongoing (with an additional $200 million going to local health jurisdictions) to implement the recommendations of the Future of Public Health workgroup. The department released a spending plan detailing how it would use the $100 million to improve state operations, including expanding the state’s public health workforce, strengthening emergency preparedness and response capabilities, and implementing a comprehensive community health improvement strategy. The spending plan maintains the $300 million General Fund for the department and local health jurisdictions.

Eliminates Funding for Public Health Regional Climate Planning With Possible Trigger Restoration. In the 2022-23 Budget Act, the department received $25 million to establish a grant program for local health departments, community-based organizations, and tribes to develop regional climate and health resilience plans. This year’s budget package enacted a number of budget solutions, including the elimination of the $25 million for Public Health Regional Climate Planning. If there is sufficient General Fund available in January 2024, however, the spending plan specifies the funding for this program will be restored.

Health Care Access and Information

Most General Fund Support at HCAI Is One Time. In 2023-24, the state is spending $299 million General Fund ($677 million total funds) for HCAI. Of the General Fund support, $244 million is one time, both implementing existing limited-term initiatives adopted in previous budgets and supporting new initiatives. The remaining $55 million is ongoing, reflecting an increase of $3 million (5.7 percent) over the revised 2022-23 level. Major ongoing and one-time General Fund spending focuses on HCAI’s core missions of improving health care access and affordability and developing the state’s health workforce. Below, we summarize the major adjustments in each area, as well as actions in other areas.

Health Care Access and Affordability

Supports New Distressed Hospital Loan Program. Early action trailer bill legislation (Chapter 6 of 2023 [AB 112, Committee on Budget]) establishes the Distressed Hospital Loan Program to provide interest-free loans to public and private nonprofit hospitals experiencing financial distress. The legislation tasks HCAI, in coordination with other relevant health departments, to develop eligibility requirements. Hospitals that receive loans must begin repayment after the first 18 months and fully repay the loans within 72 months. This year’s budget package provides $300 million over two years for the program, including $150 million General Fund in 2022-23 from the early action legislation and $150 million in 2023-24 from the MCO tax package (described earlier). The program is set to sunset in January 2032. In addition to creating this program, the early action legislation enhances existing hospital financial reporting requirements to HCAI to better identify which hospitals are experiencing financial distress.

Expands and Modifies Pharmaceutical Affordability Program. Previous legislation (Chapter 207 of 2020 [SB 852, Pan]) directed CalHHS to enter into partnerships with private industry to manufacture or distribute affordable generic prescription drugs. Last year’s budget implemented the first year of this program—known as “CalRx”—by supporting an insulin manufacturing initiative at HCAI. This year’s budget expands the CalRx initiative by providing (1) $30 million one-time Opioid Settlement Fund to manufacture or procure a low-cost, generic version of a naloxone nasal product (described further in the “Behavioral Health” section of this post), and (2) $2 million one-time General Fund, reappropriated from a pre-existing reproductive health initiative, to increase the state’s stockpile of reproductive health drugs. The budget also makes a number of smaller modifications to CalRx, including by transferring associated staffing and resources from CalHHS to HCAI and by enacting technical statutory changes in trailer bill legislation (Chapter 42 of 2023 [AB 118, Committee on Budget]).

Continues Ramp Up of Office of Health Care Affordability. Last year’s budget package formally established the Office of Health Care Affordability and tasked it with establishing statewide health care cost growth targets, among other activities. In tandem with this action, the budget assumed a multiyear ramp up of the office’s operations as it hires staff. In 2023-24, the budget continues support for this ramp up by providing $13 million General Fund.

Health Care Workforce

Delays Support and Shifts Fund Source in Last Year’s Health Care Workforce Package. Last year’s budget enacted a multiyear package of health workforce initiatives across several departments, with a majority of the initiatives and associated spending at HCAI. This year’s spending plan enacts budget solutions related to many of the HCAI initiatives. As Figure 6 shows, there are two kinds of solutions in this area. First, funding for certain initiatives is delayed. Most of the delays shift funding from 2022-23 to 2023-24. As an exception, the budget delays most of the planned support in 2023-24 for a community health workers initiative into the following two years. Second, the budget supports certain behavioral health initiatives in 2023-24 using MHSF instead of General Fund.

Implements Final Year of Children’s Behavioral Health Workforce Initiative. The 2021-22 budget enacted a crosscutting, multiyear initiative to expand and improve mental health services to children. Known as the Children and Youth Behavioral Health Initiative, the package included a multiyear plan at HCAI supporting various workforce-related efforts. This year’s budget provides $75 million General Fund to HCAI in 2023-24, implementing the final year of funding in this area.

Supports Two Other Health Workforce Initiatives. The budget provides $10 million one-time General Fund in 2023-24 for a Promotores de Salud initiative. (Promotores are part of the state’s community health worker workforce.) According to the administration, this initiative supports a smaller subset of community-based organizations relative to the community health worker initiative adopted in last year’s budget. The budget also provides $2.8 million General Fund annually beginning in 2023-24 for the California Medicine Scholars Program, which supports coordinated pre-medicine education pathways and support services at community colleges, universities, and medical schools. The program first received one-time funding in the 2021-22 budget, covering its operating costs over its initial years.

Other Actions

Enacts Two Special Fund Loans to the General Fund. The package of budget solutions in this year’s spending plan includes loans from two HCAI special funds: (1) the Hospital Building Fund ($200 million) and the California Health Data and Planning Fund ($30 million). The loans will be supported from the funds’ balances and are not expected to impact programming or HCAI operations. The spending plan assumes the General Fund repays both loans in 2026-27.

California Health and Human Services Agency

The spending plan includes $690 million ($110 million General Fund) for CalHHS, a $155 million ($19 million General Fund) decrease over the revised 2022-23 level. The net decrease in General Fund is mostly explained by the expiration of several temporary commitments made in prior budgets. This reduction is offset by the addition of the Health and Human Services Innovation Accelerator Initiative described below, as well as other augmentations.

Creates Health and Human Services Innovation Accelerator Initiative. The spending plan includes $42 million General Fund in 2023-24 and $32 million General Fund in 2024-25 for a public-private partnership that will aim to accelerate the translation of research and development into innovations that help address disparities and inequities in safety-net programs. The administration will identify up to five key areas of health disparities, seek to fund researchers and implementation efforts to advance solutions that can close targeted disparities, and apply the solutions to California programs.

Office of Technology and Solutions Integration. Budget-related legislation changes the name of the Office of Systems Integration to the Office of Technology and Solutions Integration (OTSI). This legislation also allows the Director of the Department of Finance to authorize a loan of up to $200 million General Fund to OTSI’s revolving fund—the California Health and Human Services Automation Fund—if certain requirements are met. (Some information technology [IT] projects involving OTSI, such as the Child Welfare Services - California Automated Response and Engagement System IT project, are covered in other sections of our spending plan series.)

California Statewide Automated Welfare System (CalSAWS). The spending plan includes $355.1 million ($105.8 million General Fund) in 2023-24 for the development, implementation, maintenance, and operations of CalSAWS—the state’s public benefit eligibility and payment system. An additional $170.1 million ($104.4 million General Fund) is appropriated in 2023-24 for updates to CalSAWS (and other smaller IT systems) to automate recent state budget and policy actions and to maintain and operate the California Work Opportunity and Responsibility to Kids Information Network (CalWIN) system until all remaining CalWIN counties migrate to CalSAWS by the federal deadline of December 31, 2023. The spending plan also includes an additional $1.25 million General Fund in 2023-24 and ongoing for new CalSAWS-related state operations costs at DHCS and DSS. (Other CalSAWS-related funding, such as funding for the interface between CalSAWS and the Child Welfare Services - California Automated Response and Engagement System is covered in other sections of our spending plan series.) The Legislature also adopted supplemental report language that requires both the administration and CalSAWS to submit a report on or before January 10, 2024 on the project’s efforts to improve its engagement with stakeholders to solicit and integrate their feedback and input into the public-facing elements of CalSAWS.

Covered California

The spending plan includes $105 million in state funds—$85 million from the Health Care Affordability Reserve Fund (HCARF) and $20 million from the General Fund—for Covered California, an increase of $85 million over the 2022-23 level. The increase is due to the partial restoration of state subsidies on the health benefit exchange described below.

Partial Restoration of State Subsidies. The 2019-20 budget package created a state premium subsidy program for 2020 through 2022, initially funded at roughly $400 million General Fund. The initial program reduced the cost of premiums for consumers at or below 600 percent of the federal poverty level purchasing coverage on the state’s health benefit exchange. The availability of enhanced federal subsidies beginning in 2021, however, effectively supplanted the state program. Amounts that otherwise would have gone toward the state subsidy program were instead moved to the HCARF to support future state affordability efforts. The 2023-24 budget includes $82.5 million from the HCARF, growing to $165 million ongoing HCARF beginning in 2024-25, to partially restore the state subsidy program. In contrast to the 2020 premium assistance program, funding will be used to reduce deductibles and the consumer share of other health care costs beginning in 2024. In addition to dedicating HCARF funding for the state subsidy program, the spending plan includes $2 million from HCARF to support health care coverage for striking workers.

Reversion, General Fund Loan, and Fund Accounting Changes. The spending plan shifts the deposit of individual mandate penalty revenues from the General Fund to the HCARF beginning July 1, 2023. In addition, the budget reverts $304 million that was appropriated from the HCARF in the 2022-23 budget and instead uses these funds and the bulk of penalty revenues estimated to be collected in 2023-24 to make a $600 million loan to the General Fund, to be repaid in 2025-26.

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