California’s 2023-24 budget allocates $156.6 billion to the Department of Health Care Services


Hannah Saunders


The state of California recently adopted their $310 billion 2023-24 state budget, and despite a $31.5 billion shortfall, leaders prioritized investments in healthcare. Key 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 for program costs. DHCS will receive an $11.8 billion increase when compared to last year’s budget funding that was $144.8 billion. 


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The budget renews the MCO Tax, which will allow California to receive federal matching funds to support the Medi-Cal program. The MCO Tax, awaiting federal approval, is estimated to bring approximately $19.4 billion in net state benefits until 2026, and over that net benefit period, approximately $8.3 billion will go towards existing Medi-Cal expenditures. The leftover $11.1 billion will go towards new Medi-Cal investments. 

Under the MCO Tax, rates for primary care, including nurse practitioners and physician assistants, maternity care, including OB/GYNs and doulas, and non-specialty mental health services will increase to at least 87.5 percent of Medicare beginning on Jan. 1st, 2024. The tax is three times larger than in previous years, and will focus on augmenting other areas of the Medi-Cal program, rather than solely on offsetting Medi-Cal spending.

Donaldo Hernandez, M.D., president of the California Medical Association, recently praised the renewal of the MCO Tax.

“The passage of this bill and the agreement to invest new revenue in the healthcare system will equip California to meet our future demands by training hundreds of additional physicians each year and ensuring emergency departments are able to stay open in times of crisis. Thanks to these MCO Tax dollars, our state will be able to make significant strides towards fulfilling Medi-Cal’s promise of providing access to quality and timely care for our most vulnerable patients.”

— Hernandez

California will also require Medi-Cal managed care plans to pay providers, at minimum, the base fee-for-service rates. MCO Tax proceeds, combined with funding from the Department of Health Care Access and Information, 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 over the next several years, for graduate medical education through the University of California, which issued a statement regarding the budget in June.

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

— University of California 

While much excitement surrounds the MCO Tax renewal, the budget also creates a number of changes to the CalAIM program. DHCS plans to submit a 1115 demonstration waiver no later than this fall to expand behavioral health services for Medi-Cal members living with serious mental illness or serious emotional disturbance, known as the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) demonstration. 

Although this demonstration has not yet been submitted or approved by the Centers for Medicare and Medicaid Services, California hopes to implement BH-CONNECT by Jan. 1st, 2025. Over five years, it is estimated to cost $6.1 billion, with $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 each year for the five-year demonstration period. 

As part of the BH-CONNECT demonstration, the budget includes transitional rent services and seeks an amendment to the CalAIM waiver to allow transitional rent services to be included as a Community Support. 

Transitional rent services would allow for up to six months of renting or temporary housing to eligible individuals who are experiencing homelessness or who are at risk of becoming unhoused, and who are transitioning out of institutional levels of care, correctional facilities, or the foster care system, who are also at risk of incurring other Medicaid state plan services, such as inpatient hospitalizations and emergency department visits. Fiscal impacts for this service would begin during FY 2024-25.

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

At the start of this calendar year, DHCS implemented pre-release Medi-Cal eligibility and enrollment processes for up to 90 days prior to release from youth and adult state prisons, county jails, and youth correctional facilities. The budget includes $9.9 million, with $3.8 million from the general fund, for FY 2023-24 to implement the justice-involved initiative and pre-release services, and an additional $225 million is expected to be provided through the Providing Access and Transforming Health (PATH) initiative. 

Funding for the justice-involved initiative, in part, will support the collaboration between correctional facilities and county social services departments on planning and the implementation of the pre-release Medi-Cal enrollment processes. 

PATH will also receive an additional $40 million from the general fund to assist providers with implementing and building out CalAIM’s Community Supports and Enhanced Care Management services in clinics. 

Another initiative within the budget relates to the expansion of Medi-Cal services, including in-home supportive services, to undocumented individuals residing in the state. Effective Jan. 1st, 2024, all income-eligible adults between the ages of 26 and 49 years, regardless of immigration status, may apply to receive the full-scope of Medi-Cal benefits and services. 

The budget allocated $1.4 billion, with $1.2 billion from the general fund, for FY 2023-24, and $3.4 billion, with $3.1 billion from the general fund, at full implementation.