Changes to Medi-Cal in Newsom’s May revise

Gov. Gavin Newsom submitted his 2020-21 May revise to the Legislature on Thursday, coming in about $19 billion short of his $222 billion January proposal due to the economic impacts of the COVID-19 pandemic. The new proposal represents a 5.4% decrease in the overall budget compared to last year.

California is expected to face a $54 billion budget deficit, due to significant drops in state revenue and increased costs related to COVID-19. To balance the budget, the May revise, in part, looks to cancel $6.1 billion in program expansions and spending increases, draw down $16.2 billion from the Rainy Day Fund over three years, and borrow and transfer $4.1 billion from special funds.



The Newsom Administration predicts the state unemployment rate will reach 18% this year and is expected to peak at 25%.

“COVID-19 has caused California and economies across the country to confront a steep and unprecedented economic crisis – facing massive job losses and revenue shortfalls,” said Governor Newsom. “Our budget today reflects that emergency. We are proposing a budget to fund our most essential priorities – public health, public safety and public education – and to support workers and small businesses as we restart our economy. But difficult decisions lie ahead. With shared sacrifice and the resilient spirit that makes California great, I am confident we will emerge stronger from this crisis in the years ahead.”

The new budget proposal makes significant changes to California’s Medi-Cal program.

The May revision assumes that the COVID-related recession will result in a significant increase in Medi-Cal enrollment. It estimates caseload will peak at 14.5 million in July 2020 — approximately 2 million higher than the predicted caseload without the pandemic.

While the May revise keeps in place current Medi-Cal eligibility, such as coverage of undocumented children and young adults, the state will no longer be able to increase rates or expand the programs that were originally proposed in January.

At the top of the budget cut list, Newsom proposed delaying the implementation of the state’s broad Medi-Cal reform initiative (CalAIM). The delay would save $695 million in 2020-21. Also included in the budget cuts is $45.1 million in general funds in 2020-21 and $42 million in general funds in 2021-22 for the Behavioral Health Quality Improvement Program.

The May revise also proposes that the state does not implement parts of the 2019 Budget Act including the expansion of Medi-Cal to aged, blind, and disabled individuals with incomes 123% – 138% of the federal poverty level in order to save $135.5 million. The expansion of Medi-Cal to post-partum individuals not receiving coverage but who are diagnosed with a maternal mental health condition is also on the chopping block.

Gov. Newsom also withdrew his proposal to offer full-scope Medi-Cal to undocumented older adults (saving $112.7 million), his proposal to provide payments to non-hospital clinics for 340B pharmacy services (saving $52.5 million in 2020-21), and his proposal to assist with the cost of hearing aids for certain children (saving $5 million).

Newsom’s office says the “most painful” budget cuts will only be necessary if the federal government doesn’t provide additional aid to states. Earlier this week, Newsom and other leaders in the Western States Pact sent a letter to congressional leadership calling for $1 trillion in aid for state and local governments to preserve services like public health, public safety, and public education.

“California did not create this problem and should not be required to solve it alone. The federal government must pass a relief package for state and local governments. Without one, deep cuts to core services like schools, universities, and safety net programs will be unavoidable—both in California and across the country,” wrote Newsom in a statement to the Legislature.

The Department of Health Care Services budget breakdown stipulates that without additional federal funds, the following actions will be necessary to balance the budget:

  • Reduce adult dental benefits and eliminate optional benefits such as audiology, speech therapy, podiatry, optometry, and occupational or physical therapy.
  • Shift $1.2 billion in Proposition 56 funding from providing supplemental payments for dental, physician, developmental screenings, value-based payments, and others to support growth in the Medi-Cal program.
  • Eliminate the Community-Based Adult Services and Multipurpose Senior Services Programs.
  • Eliminate special carve outs for Federally Qualified Health Centers.

The May revise maintains the nursing facility reform framework included in Newsom’s budget, and assumes a 10% rate increase for skilled nursing facilities for 4 months during the pandemic. Shifted revenues from the state’s proposed e-cigarette tax would go towards supporting the growth in Medi-Cal costs.

The full rundown of budget changes to health and human services is available here.