Insiders react to Newsom’s budget proposal

On January 10th, Gov. Newsom submitted his 2020-21 state budget proposal to the Legislature. Topping off at a record $222.2 billion, the budget proposes significant investments in education, homeless services, health care and a multitude of other programs. 

State of Reform asked several insiders for their take on the health reforms included in the budget proposal. What investments were they most pleased to see? What impact will a spending boost of this degree have on the state economy? Are the health reforms ambitious enough?  

Below are the highlights from our conversations with insiders, organized by issue area.


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Expanding coverage to undocumented Californians 

The proposal expands Medi-Cal to cover undocumented adults over the age of 65 through an $80 million expansion in year one for 27,000 individuals, and growing to $350 million over the next two years. This comes after the Legislature expanded Medi-Cal to cover undocumented young adults under age 26, last session.

The new expansion to senior citizens has garnered a great deal of attention. 

This is obviously very costly, likely to elicit a reaction from President Trump’s Health and Human Services Department in approval of any new section 1115 waiver from the federal government. On that note, the proposed new waiver outlined in the budget does not include work requirements or other of what we in California might consider onerous conditions on qualification for Medicaid services. I have been very unclear as to the receptivity of CMS under Trump to approve what might be considered a more liberal approach,” said Cindy Ehnes, the principal of COPE Health Solutions in California.

Republican lawmakers maintained that Medi-Cal could stand to be improved before any further expansion. Jim Stanley, the press secretary for the California State Assembly’s Republican Caucus, offered the following: 

In terms of Medi-Cal for undocumented seniors, California should fix the program for current enrollees who aren’t being served before opening the program to anybody new. As it is, Medi-Cal is plagued with poor access to care thanks to low reimbursement rates and other problems. Adding people to the program without fixing its issues is the wrong approach.”

Others asserted that the expansion was in keeping with a concerted effort on the part of the administration to avoid backing away from difficult issues.  

The Governor’s budget is both bold and practical, offering direction and leadership on an array of health and behavioral health policy. I’m very pleased to see the continued expansion of coverage for undocumented Californians and for commitment to improve Medi-Cal programs,” said David Panush, President of California Health Policy Strategies.

Prescription drug pricing 

Gov. Newsom’s proposal for reducing the price of prescription drugs would involve creating a state-owned generic drug label and a single drug purchasing market. This area of the budget proposal was another point of interest for insiders. 

California like many other states is aggressively seeking to reduce the cost of prescription drugs, however, the problem has proven fairly intractable. There continues to be a belief that ‘size matters,’ when my observation is that there doesn’t appear to be any entity big enough to really attack the problem absent the federal government pulling up the big boy pants to take on Pharma and negotiate drug prices,” said Ms. Ehnes. 

Mr. Stanley re-emphasized his skepticism that the state can, or should, engage in such an ambitious proposal amid its current challenges. 

I’m wary of the Governor’s proposal regarding generic drugs. California can’t fix potholes or register voters correctly – now it wants to get into the pharmaceutical business? If the generic drug proposal gets screwed up, people will get hurt. And state government screws up with alarming regularity,” said Stanley.

Behavioral health integration 

Integrating behavioral health with physical health has been cited as a priority for the administration. The governor recently announced plans to commission a behavioral health task force at the California Health and Human Services Agency.

Cindy Ehnes of COPE Health Solutions provided her interpretation of the proposal and signaled support for an update to an existing law governing mental health services.

The governor proposes to improve behavioral health integration with physical health and purity for behavioral health treatment, creating a task force to make recommendations to the legislature and attempting to make Medi-Cal more seamless to the Medi-Cal waiver. Also, his proposal to update prop 63, the mental health services act, to allow treatment dollars for treatment of substance-abuse disorders and homelessness is badly needed.”

Office consolidation and claims infrastructure 

An insider who spoke to State of Reform off the record highlighted an area of the budget proposal that has garnered little attention. The budget proposes to consolidate the Office of Health Care Affordability and a few of the other offices, such as the Patient Advocate, into a single data-reporting entity.

Instead of taking 4-5 years to stand up a Mass-style Commission, an office could be up and running much sooner, and could act more quickly.  We hope that it will include focus on the transition from fee for service to value based provider reimbursement. It’s not just about providers, we’ll need to push Plans to build the right claims infrastructure to support more capitation, and also for employer self-funded operations to move off of leased FFS provider networks into more clinically-integrated networks paid for value rather than volume.”

MCO tax

While largely optimistic about the budget, David Panush of California Health Policy strategies did mention one area of concern: the failure to extend California’s tax on health insurance plans — or  “managed care organizations” (MCOs). 

One warning flag in the budget was the decision not to include funding of the MCO tax, as the Trump Administration proposes new regulations that could dramatically impact the funding structure for health care in California,” said Panush.